War and Inflation Give Europe a $73.6 Billion Consumption Loss

European consumers spooked by war in Ukraine and record inflation are set to give up as the main drivers of the region’s post-pandemic recovery, dealing a heavy blow to the economy this year, according to a survey by Allianz SE.

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(Bloomberg) – European consumers spooked by war in Ukraine and record inflation are likely to give up as key drivers of the region’s post-pandemic recovery, dealing a heavy blow to the economy this year, according to an Allianz SE survey.

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Based on deteriorating consumer confidence, economists led by Ana Boata estimate that private spending lost in the eurozone of the 19 countries in 2022 will amount to 70 billion euros ($73.6 billion). , or the equivalent of approximately 500 euros per household. The estimate is based on a May survey of more than 2,500 people in Germany, France and Italy, the region’s three largest economies.

Eurozone private consumption began to contract late last year and fell 0.7% in the first quarter amid persistent strong price pressures that could worsen further. The European Central Bank warned this week that inflation in 2022 could top 7% and pledged a quarter-point hike in interest rates next month – the first in more than a decade – with a larger rise likely to follow in the fall.

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Boata and his peers expect consumer spending to decline in the second and fourth quarters as well — interrupted only by a brief rebound in hospitality and travel expenses during the summer vacation season.

At the same time, gross savings rates in the three economies covered by the survey will return to long-term pre-pandemic averages by the end of the year, they said.

Higher food and energy costs are partly to blame. Household bills for the former will climb an average of 550 euros this year, spending for the latter is expected to increase by more than 750 euros, according to the report.

While excess savings in the eurozone amount to more than 380 billion euros, they are unevenly distributed across income groups, the economists wrote, with the weakest households eyeing a buffer of just 93 euros.

“Therefore, for nearly two-thirds of households, excess savings will be insufficient to protect them from the inflationary hurricane this year,” they said.

Mary I. Bruner