EU Consumers Tighten Belts As Cost of Living Rises

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Rising interest rates and electricity costs have forced consumers in Europe to start reducing their consumption on a voluntary basis.

As the Financial Times (FT) reported on Sunday (Oct. 30), spending on cars, movies and hotel reservations has fallen, and consumers are cutting back on their big-ticket purchases. Total income continues to rise, the report said, but the amount of goods being purchased is falling and outpacing inflation.

“Consumers are tightening their belts, saving for heating and other essentials,” Melanie Debono, European economist at Pantheon Macroeconomics, told the Financial Times.

The report said consumer sentiment is falling amid warnings of a recession in many European countries. However, the European Central Bank continues to raise interest rates to combat inflation.

European consumers are “feeling that their purchasing power is shrinking,” said Bert Colijn, chief economist at ING. “Obviously, the consumer has to decide what to spend.”

Debono told the FT that he expected income to drop in the final quarter of the year “as household incomes lead to more savings to cover the cost of winter heating.”

Read more: Sellers Rush to Respond as Buyers Stop Declining

Of course, the situation is not limited to Europe. PYMNTS’ Consumer Inflation Sentiment: Consumers Buckle Down On Belt-Tightening survey says two-thirds of retail shoppers say they are spending less on “nice-to-haves” compared to a year ago, while 58% of grocers say the same.

As consumers cut back on their unnecessary shopping and grocery spending, this belt-tightening has hit retailers harder than retailers.

The fear of the coming recession will benefit others, such as the cheapest, and the cheapest restaurants, since consumers will continue to engage in other spending habits – such as eating – but in cheaper places. And cheap restaurants will be facing increased competition from home restaurants to save money.

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