Inflation scares Europeans more than Americans - Household consumption has increased 5.5% in the eurozone, compared to 18% in the US
European consumers spend less and are more concerned about rising inflation than Americans. This difference in consumer spending is one of the main reasons for the widening growth gap between Europe and the United States, which also has a gap in savings and investment.
Inflation, which has risen in recent months due to the war in the Middle East, has had a greater impact on the psychology of Europeans, with consumers in the Old Continent continuing to save more and spend mainly on essential items, according to transaction data analyzed by Visa.
Household consumption has grown by 5.5% in the eurozone, compared with 18% in the US, according to inflation-adjusted data from the Organisation for Economic Co-operation and Development. This explains much of the growth gap between the US and Europe over the past two years.
Real disposable income, which is adjusted for inflation, is now 8% higher in the eurozone than before the pandemic. If households were to return to pre-pandemic savings levels, eurozone gross domestic product would be 1.3% higher.
Measures such as tax cuts could help boost spending, but many governments are constrained by high debt levels, defense spending and an aging population, the American newspaper estimates. At the same time, data show that eurozone households saved about 15% of their disposable income last year, compared with about 12.5% before the pandemic. In Britain, the savings rate is almost double what it was before the pandemic. Meanwhile, the American savings rate has fallen well below pre-pandemic levels.
There are also differences in investments, with many Europeans more cautious about them. Europeans hold about a third of their financial assets in cash or bank accounts, earning low interest rates that can outpace inflation. Channeling some of the very large sums sitting in European households’ bank accounts into more productive investments would help the economy, economists say. Americans, by contrast, appear to be investing more in financial markets.
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