An update on European consumer sentiment: As pessimism grows, what happens to holiday spending?

After growing steadily through most of 2024, consumer optimism in Europe dipped in the final quarter of the year, although it remains higher than in the same period a year ago. Consumer optimism declined across generations, with the notable exception of Gen Z, whose optimism over the state of the economy rose modestly compared with the previous quarter.

A country-level look reveals nuances in sentiment. Despite moderate growth and inflation, consumers in France reported their highest rates of pessimism since late 2022. In Germany, which experienced low growth and high inflation relative to the eurozone in the fourth quarter, more consumers reported feeling pessimistic than optimistic for the first time since the end of 2023. In Italy, the fraction of consumers saying they feel pessimistic grew by seven percentage points. Among the countries surveyed, Spain had the biggest decline in optimistic consumers (down 12 percentage points from last quarter). Finally, the United Kingdom saw a nine-percentage-point increase in pessimistic consumers, likely due to consumer disillusionment after a postelection spike in optimism over the summer.

In the third quarter of 2024, unemployment in the eurozone was 6.3 percent, a historic low, while inflation rose only slightly, to 2 percent, in October, and GDP growth reached 0.4 percent. Even with these relatively positive economic indicators as well as stable household finances, consumer optimism dropped. As we have seen in the United States, though, consumer sentiment and behavior don’t always align. Fewer consumers in Europe reported taking savings measures—such as tracking expenses more carefully or reducing spend on food or groceries—compared with the previous quarter.

This paradox highlights a complex consumer psyche: despite stable savings (above prepandemic rates), income, and spending rates, other factors such as domestic politics and geopolitical tensions weigh heavily on consumers’ outlook. These issues may have weakened the link between confidence and spending behavior this quarter.

In another measure of willingness to spend, more consumers in Europe reported an intent to splurge compared with the previous quarter. Both Gen Zers and millennials reported an increase in their intent to splurge, while Gen Xers and baby boomers reported little change in their intent to splurge. More consumers in Germany, Italy, and the United Kingdom reported an intent to splurge than those in France and Spain. Although the intent to splurge was up across all income groups, this was especially true for high-income consumers.

In the five European nations we surveyed, although more than half of survey respondents still expressed mixed feelings about the economy, more consumers were optimistic than pessimistic in the third quarter of 2024. This may be due to inflation stabilizing in much of Europe and consumers feeling slightly less concerned about international conflicts. The Olympic Games, EuroCup finals, and summer holiday season may have also contributed to the improved consumer sentiment.

In Spain and the United Kingdom, consumer optimism grew more in the third quarter than it did in other countries (up 6 percentage points each to 36 percent and 30 percent, respectively). Somewhat surprisingly, consumers in France reported an increase in pessimism (up 5 percentage points to 28 percent), despite playing host to the Olympic Games. This is particularly salient given that pessimism in Italy, Germany, and the United Kingdom fell. The uptick in pessimism in France could be attributable to frustrations that consumers there are feeling after the snap elections, which took place in late July.

Consumers across all age and income groups reported feeling more optimistic than they did in the second quarter, though optimism was highest among Gen Z. This is similar to what we observed in the United States.

Most consumers in Europe (82 percent) either increased or maintained their spending from the second quarter, although slightly fewer (77 percent) said they increased or maintained their income. Indeed, nearly a third of consumers stated they started tracking their expenses more carefully.

European consumers remained cautious about spending. Across most discretionary categories, consumers said they planned to reduce their spend over the next three months. This was particularly true for home improvement and gardening projects, international flights, and hotel and resort stays, which is in line with what we would expect to see heading into the autumn months.

The share of consumers indicating a desire to splurge over the next three months is holding steady, at slightly more than one third. Although dining out, travel, and fashion remain top splurge categories, slightly more consumers indicated a desire to splurge on items for the home, groceries, and electronics in the third quarter. This makes sense, given that the survey was conducted at the end of the summer travel season.

More Gen Zers continued to indicate an interest in treating themselves compared with any other age group.

The share of consumers in Europe who reported trading down in the third quarter held steady from the second quarter (76 percent versus 74 percent) and is down 4 percentage points year on year. The United Kingdom was an exception, with more consumers reporting trading down in the third quarter compared with the second quarter. (This may be due to ongoing concerns over inflation and the high cost of living).

For the third consecutive quarter, the percentage of European consumers who reported feeling optimistic grew slightly, while the percentage of consumers who said they were pessimistic decreased slightly in the second quarter of 2024. These shifts mirror relatively positive economic data out of the eurozone that aligned with the timing of our survey. Consumers who reported feeling optimistic attributed their feelings to stabilizing inflation rates, while consumers who felt pessimistic about the economy blamed their woes on ongoing international conflicts and the challenges posed by climate change. Even with these minor fluctuations, most consumers in Europe reported having mixed feelings about the economy.

Consumers in Germany and Italy reported feeling most optimistic compared with consumers surveyed in other European countries. Middle-income consumers and baby boomers reported the highest increase in optimism.

Consumers in Europe said their household finances in the second quarter of 2024 remained mostly unchanged from the previous quarter, as they continued to reduce their spending and increase their savings, while also reporting a slight increase in income. Among the savings measures taken, consumers most frequently said they started tracking their expenses, although fewer consumers reported doing so this quarter compared with the previous (down two percentage points to 28 percent).

When it came to essential items, such as groceries, most consumers in Europe said they expect to maintain their spending levels over the next three months. Consumer spending expectations on essentials fluctuated slightly from the previous quarter (for example, their net intent to spend on fresh produce grew one percentage point from the beginning of the year). Gasoline represented the biggest reported anticipated change in spending expectations, which may be because of increased driving related to summer travel.

There were greater differences in quarterly spending expectations across semidiscretionary and discretionary categories compared with essential items. More consumers in Europe said they expected to spend more on hotels and international flights compared with the first quarter of 2024—no surprise, given the upcoming summer travel season. Consumers also said they expected to spend more on jewelry compared with last quarter, which may reflect their relative confidence in the economy.

After a drop at the beginning of the year, more consumers said they plan to splurge over the next three months (up three percentage points to 37 percent) compared with the previous quarter. However, most consumers in Europe (63 percent) maintain that they do not plan to splurge. Gen Zers reported a higher-than-average intent to splurge, followed by millennials. When they did express an interest in splurging, Gen Xers and baby boomers said that they intended to treat themselves by dining out and traveling. Gen Z consumers, meanwhile, reported an interest in splurging on apparel compared with other age groups.

Despite their relative optimism and willingness to selectively splurge, consumers in Europe also said they would continue to trade down. Most frequently, consumers said they would trade down by adjusting the quantity of items purchased, a behavior we have also observed in the US market, or choosing to shop at lower-priced retailers. Even as they expressed the highest intent to splurge, Gen Zers and millennials, particularly in France and Spain, were also more likely to report trading down than older generations.

In February, consumers in Europe reported feeling slightly more optimistic than they did in the previous quarter, although they expressed far less optimism about the economy compared with consumers in the United States (23 percent versus 38 percent, respectively).

Political instability in Europe could help explain the difference in reported optimism between the two regions. Still, the majority of consumers in Europe, as was the case in the United States, reported having mixed feelings about the economy. Consumers in Europe who reported feeling optimistic about the economy cited inflation stabilization and advancements in medicine as reasons for their optimism. An improved job market also contributed to positive sentiment. Middle-income consumers, Gen Xers, and baby boomers reported the highest increase in optimism among demographic groups.

European consumers said their spending levels were similar to those of the previous quarter, and roughly one-third said they continue to monitor their expenses carefully. A small but notable margin of consumers said their savings increased or stayed the same this year compared with last year, indicating that household finances improved slightly.

Consumers said they expected to increase spending on home improvement and gardening supplies, international flights, and hotels, as well as sports and outdoor equipment. As this survey took place in the first quarter of the year, this could explain why these categories are more popular, since the beginning of a new year is often a time when consumers spend on home and fitness products. Likewise, consumers may have said they expected to spend money on travel because they were planning for the year ahead.

High-income consumers reported an increase in their intent to spend, particularly on categories such as sports and outdoor equipment, as they prioritize wellness in the new year. Low-income consumers, meanwhile, said they expected to increase their spending on short-term apartment rentals.

Apart from home improvement and gardening supplies, Gen Zers expressed a higher intent to spend on furniture, whereas millennials and baby boomers said they intended to spend on hotels. Gen Xers, meanwhile, said they expected to spend on cruises, flights, and out-of-home entertainment.

Most European consumers continued to adjust their purchasing habits in response to high prices, even as inflation dipped slightly in the first quarter of 2024. Consumer trade-down behaviors included purchasing more affordable private-label products, choosing budget-friendly retailers, and delaying purchases. Notably, consumers across all income brackets said they traded down in February, although the percentage of down-traders was highest among Gen Zers and millennials.

As has been the case for much of the past year, consumers are simultaneously looking for ways to save and to splurge. Thirty-four percent of consumers said they intended to splurge, and among them, travel, dining out, and apparel were top of mind. Gen Zers said they would splurge on clothing and footwear, whereas baby boomers said they intended to splurge on travel and restaurants. While Gen Zers in general prefer to spend on experiences over material items when given the choice, their interest in splurging on clothing and footwear over the next three months reflects short-term decision making based on their current economic circumstances.

Consumer optimism dropped. Most consumers in our survey reported having mixed feelings about the economy in the last quarter of 2023, while a smaller percentage reported feeling optimistic compared with the previous quarter.

More than half of consumers—but a lower percentage than in the previous quarter—said they still considered inflation to be a major concern. European consumers expressed a slightly higher level of concern over immigration and political polarization in the fourth quarter, both up two percentage points from the previous quarter. Climate change also remained a concern.

In line with the third quarter of 2023, half of European consumers reported having reduced savings. One-third claimed they started tracking expenses more carefully or reduced the amount of income going to savings.

Expected spending held steady. Consumers mostly expected their spending to remain about the same as it was the previous quarter, with a few notable exceptions. The holiday season likely influenced the increase in intention to purchase toys and decrease in intention to spend on fitness and wellness services.

Trading down remained prevalent. To cope with the pressure on household income, nearly eight out of 10 European consumers reported that they traded down, consistent with what we saw in the third quarter of 2023. Traditional trade-down behaviors include switching to less expensive products, shopping at cheaper retailers, or postponing purchases. Consumers across all income levels said they engaged in this behavior, and a higher rate of younger consumers reported trading down compared with older consumers.

Consumers in Italy and Spain traded down the most often, according to their responses. German and UK consumers also said they traded down but at a lower rate than Italian or Spanish consumers, which may be attributed to greater confidence in their respective economies. Most consumers who said they traded down did so by reducing the amount or size of the product they bought. This trend was particularly evident in Italy. In Spain, consumers who traded down did so most frequently by switching to a different retailer that offered lower prices or discounts or by opting for lower-priced brands or private-label products. Consumers in France often postponed their purchases.

Consumers still splurged. Trading down doesn’t reflect the full snapshot of European consumer trends in the fourth quarter of 2023. Some consumers said they intended to splurge at the end of the year. Out of those who did, most said they intended to treat themselves by dining out, purchasing apparel, and traveling. Gen Zers preferred to splurge on apparel and accessories, while baby boomers said they planned to splurge on travel and groceries.

Sustainability factors influenced purchases. More than half of European consumers said health and environmental factors—such as product recyclability, sourcing, and fair trade practices—were significant to them when purchasing apparel, food, and household supplies. These factors were particularly important considerations when consumers purchased personal-care products. Consumers also ranked the absence of artificial ingredients as an important consideration when purchasing food and household supplies.

Corporate transparency and authenticity were important to consumers’ purchase decisions in most product categories. In Europe, particularly in Italy and the United Kingdom, Gen Zers were interested in these factors more than older consumers were.

European consumers cared about minimizing packaging and creating a neutral carbon footprint more than consumers elsewhere in the world did. That said, over the last six months, a decreasing percentage of European consumers have cited fair trade practices, recyclability, and sustainability as important factors in their apparel and household supply purchase decisions.

Consumer optimism held steady as mixed feelings grew. Consumer optimism did not change, while mixed feelings about the economy grew in the third quarter of 2023. This came after a significant increase in optimism in the preceding quarter. Price stabilization and a continuing economic recovery helped maintain optimism. Germany experienced a slight decline in consumer confidence, while Spanish consumers expressed increasing confidence.

Inflation remained the top concern for two-thirds of consumers. More European consumers expressed concern over climate change in the third quarter, up four percentage points from the previous quarter—feelings that may have been driven by natural disasters such as heavy rains and wildfires in southern Europe. Ongoing geopolitical turmoil, continued interest rate hikes, and increasing heating and electricity costs have all further affected consumer confidence.

Younger consumers and higher-income consumers reported the highest confidence in a rapid economic recovery, consistent with what these groups have expressed over the past two years.

Semidiscretionary spending fell. Most shoppers said they expected to spend about the same across categories over the next three months, although net spending fell in several categories. Variations between categories also emerged.

Consumers said they would reduce spending the most in nonessential categories such as toys, vehicles, and skincare and makeup. They planned to maintain spending on fresh produce, pet food and supplies, and household supplies. French, Spanish, and Italian consumers expected to reduce their spending the most.

Trading down picked up. Nearly eight in ten European consumers said they would take action to alleviate the ongoing pressure on household income, particularly in categories with high price volatility such as gasoline, fresh produce, meat, and dairy.

Those actions included trading down—specifically, switching to cheaper products, shopping at lower-priced retailers, or delaying purchases. More consumers in France, Spain, and Italy said they traded down compared with consumers in other European countries. Gen Z and millennials said they traded down more than other age groups, although all income groups traded down at nearly the same rate.

Consumers saved with hopes to splurge. While some European consumers traded down, about 37 percent of consumers surveyed planned to splurge. The intent to splurge was highest in Germany (where economic optimism was also highest) and lowest in the United Kingdom. Like their American counterparts, European Gen Zers indicated the highest interest in splurging.

When it came to treating themselves, travel, dining out, and fashion were the three categories in which European consumers expressed the most interest. These also happened to be the same categories in which they said they wanted to save money. This indicates a strong intent to “save up” to splurge, meaning consumers might be spending less on those things daily so they can treat themselves to spend more later on.

It’s still too early to tell, but as real income grows and inflation falls, the intent to splurge could further increase.

Omnichannel gained traction. Across Europe, 64 percent of consumers said they made apparel purchases across a retailer’s channels, compared with 24 percent who said they completed their shopping in-store only and 12 percent who said they only shopped online. In some markets, such as France and Italy, consumers said they shopped in-store more frequently than they shopped exclusively online. That said, the majority of consumers in these countries are still shopping across all channels, underscoring the importance for brands and retailers to create strong omnichannel experiences. To be sure, the omnichannel experience is becoming more important across categories beyond apparel, including for consumer electronics, jewelry, skincare and beauty, and furniture. In grocery, omnichannel is less important to European consumers.

European consumers still shopped in-store more than American consumers, although younger European consumers have made an increasing number of purchases across channels.

Mindfulness mattered. Across apparel, food, household supplies, and personal care, about half of European consumers ranked a variety of health and environmental factors as important to them when making a purchase. These factors include whether a product is recyclable, whether the materials are sustainably sourced, and whether a brand engages in fair-trade practices. The absence of artificial ingredients, particularly in food and personal-care products, was also an important consideration for consumers. Relatedly, consumers indicated an interest in corporate transparency and altruism.

In Europe—and specifically in France and Germany—Gen Z consumers showed the most interest in these factors.

A sunnier outlook emerges in Europe. German consumers report the highest increase in net confidence, at 13 percentage points (up from –34 in September 2022), as well as the highest level of optimism—31 percent of respondents say they expect their country’s economy to rebound within two to three months and grow just as strong or stronger than it was before the conflict in Ukraine began. Meanwhile, French consumers report being the least optimistic, with 29 percent believing that the current crisis will have a lasting impact on the economy, with the possibility of a lengthy recession. (Across the continent, approximately one in five consumers expect the economic situation in their country to worsen.)

As has been true for the past two years, younger consumers and higher-income consumers report the highest confidence in a rapid economic recovery.

Consumers are coping with continuing price increases. Eight out of ten European consumers say they are taking actions to alleviate the ongoing pressure on household income. One in three consumers say they track their expenses more carefully, while just under a third say they are reducing their savings rate and dipping into their savings to cover expenses. And it’s not just low-income consumers taking these actions—higher-income consumers are adjusting their spending habits, too.

European consumers say they’re spending less on all categories. Shoppers are buying fewer items and purchasing lower-priced alternatives. Given persistent inflation, however, their total spending may remain the same, even when making fewer purchases. Older consumers are most likely to reduce their spend across categories.

Consumers are reducing their spending the most in nonessential categories such as fashion, home decor, and dining out, while largely maintaining their spending on groceries, baby supplies, personal care, and pet supplies.

“Fewer” and “smaller” characterize purchases. Looking for ways to stretch their income further, European consumers are claiming to trade down across categories in a variety of ways. Increasingly, Europeans are purchasing fewer or smaller items to reduce their spending, particularly when it comes to buying fresh produce and meat and dairy products. Shopping around for the best deals and buying in bulk remain popular strategies, while one in ten consumers say they would also switch to lower-priced retailers and lower-priced brands in the pursuit of savings.

Saving leads to splurging. Money-saving actions don’t present the full picture of the European consumer experience of late: there’s also an intent to splurge, which is highest in Germany (where economic optimism is highest) and lowest in the United Kingdom. Like their American counterparts, European Gen Zers indicate the highest interest in splurging.

Among the roughly one-third of European consumers who plan to splurge, they express the highest intent to splurge on experiences, such as travel and dining out, and on fashion—the same categories in which they say they’re looking to save money. This indicates a strong intent to “save up” to splurge, meaning consumers might be spending less on those things daily so they can treat themselves to spend more later on.