Latest / The European Economy Podcast with Fexingo: ECB, Eurozone, and Continental Markets / Why Eurozone Consumer Confidence Is Recovering Unevenly
Transcript
- Lucas: So the big headline from this week's European Commission data is that Eurozone consumer confidence is improving, but the gap between countries is getting wider. The overall index for June came in at negative 11.2, up from negative 12.8 in May — so directionally good. Luna: But that headline number hides a lot. Because when you look at France versus Germany, the spread is something like three and a half points now. Lucas: Exactly. France is lagging badly. The French confidence index is at negative 15.6, while Germany is at negative 12.2. That's a 3.4-point gap, and it's been widening for three consecutive months. And the obvious driver is political uncertainty — Lagarde's comments this week about an early ECB exit only added to the noise. Luna: Right, she left the door open to leaving before her term ends, and that's clearly tied to the French political situation. But it's not just about the ECB — French households are also feeling the pinch from higher taxes and a slower housing market. Lucas: Meanwhile, German consumers are actually a bit more optimistic. The labor market there remains tight — unemployment at 3.4 percent — and wage growth is running around 4.5 percent year-over-year. That's giving households more spending power. And it shows in the retail sales data we got last week for May: German retail sales rose 1.2 percent month-over-month, while French sales were flat. Luna: Interesting. So the gap in confidence is translating into real spending differences. But what about southern Europe? I saw that Spanish consumer confidence actually ticked up more than the euro area average. Lucas: Yeah, Spain is an interesting case. Their confidence index improved to negative 9.8, which is the best in the big four economies. A lot of that is driven by tourism. International visitor arrivals are running about 8 percent above 2024 levels, and the summer season is looking strong. That's feeding into services spending, hospitality, retail. Luna: So we're seeing a three-speed recovery: Germany solid, Spain strong, France stumbling. And then you've got Italy kind of in the middle. What does that mean for the ECB? If consumer spending is uneven, can they really keep cutting rates uniformly? Lucas: That's the tension. The ECB cut rates by 25 basis points in June, and the market is pricing in another cut in September. But if the French economy is weakening faster, a uniform rate cut might not be enough to stimulate there — while in Spain, it could overheat services inflation. The ECB doesn't have country-specific tools. Luna: It's like the old one-size-fits-all problem, but on the downside now. And it's not just consumption — look at the ETF flows. This week, the German ETF — EWG — was up over 4 percent in five days, while the French ETF — EWQ — was up only 2.5 percent. Investors are voting with their money. Lucas: Exactly. And that divergence is something we're going to be watching closely in the second half of the year. If French political instability continues — and with the parliamentary elections in October, it's not going away — we could see that gap persist. But for now, the overall euro area consumer is still in recovery mode, just not equally. Lucas: And you know, if walking through the economy with us has made something click — whether it's the confidence index, the ETF flows, or just why France and Germany are diverging — the way these episodes stay ad-free is listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that keeps us independent and focused on the data. No ads, no sponsors, just the economics. Lucas: So back to that confidence data. One of the interesting sub-components is the outlook for unemployment. In Germany, the share of households expecting unemployment to rise fell to 18 percent, the lowest in two years. In France, it's still above 25 percent. That's a big psychological driver. Luna: And that feeds into spending on big-ticket items. I saw that the French auto market was down 3 percent year-over-year in June, while German registrations were up 2 percent. That's consistent with the confidence gap. Lucas: Right. And it's not just cars — household durable goods purchases are also diverging. The European Commission survey shows that the share of French consumers planning to buy major durables in the next 12 months dropped to minus 22, while in Germany it's minus 16. That's a 6-point gap. Luna: So for investors looking at European consumer stocks, it's really a stock-picker's market. You can't just buy a euro area consumer ETF and expect uniform performance. Lucas: No, you can't. And that's the key takeaway from this data. The euro area recovery is real, but it's uneven. And that unevenness is creating opportunities and risks that are very country-specific. We'll be following this through the summer. Luna: And watching the ECB's next moves closely. Thanks, Lucas. Lucas: Thanks, Luna. Talk to you next time.