Eurozone consumers express growing skepticism over the region's economic recovery

The European Central Bank (ECB) is keeping a close eye on consumer expectations as they play a significant role in upcoming interest rate decisions. Recently, the ECB conducted a survey of 19,000 European consumers, seeking insights into their views on the economy, prices, and the labor market.

The survey results have shown a deterioration in consumer expectations across various sectors. Expectations for income and economic growth have decreased, with the forecast for growth in the next 12 months falling from -1.0% in June to -1.2% in July. This negative trend is concerning for the euro area, as it could lead to a negative spiral.

However, the ECB interprets the anticipated higher unemployment rate as a "stable labor market prognosis." This optimistic outlook is due to unemployed people feeling more optimistic about finding a job.

The ECB is currently expected to implement one more rate cut by the end of 2025, potentially lowering the deposit rate to about 1.75%. This final cut is seen as a precaution to support the European economy amid slightly falling inflation below the ECB’s 2% target. The factors contributing to this decrease include lower energy prices, a strong euro, geopolitical uncertainties, and weak economic growth.

Stability in consumer inflation perceptions helps the ECB in its monetary policy assessment. For the next 12 months, consumers expect inflation to be 2.6%, while the consumers' median rate of perceived inflation over the past 12 months is 3.1%.

Despite the anticipated improvement in housing prices, consumers expect them to rise from 3.1% to 3.3%. However, consumers also anticipate that credit conditions will worsen and banks will act more cautiously.

The expected unemployment rate increased from 10.3% to 10.6%, which could lead to further price decreases, excluding external factors like energy prices.

Despite the generally negative economic outlook, the stability in consumer inflation perceptions could make a rate cut easier. However, the overall consumer expectations regarding the economy remained largely unchanged from the previous month. This stability, while providing some relief, still presents challenges for the ECB in navigating monetary policy decisions to support the European economy.

Eurozone consumers express growing skepticism over the region's economic recovery