The Iran war has had a significant impact on the euro zone, with household consumption falling sharply in the early weeks of the conflict. According to a European Central Bank Economic Bulletin article, consumer sentiment tumbled after the outbreak of the war but has since climbed a little, although it remains well below pre-war levels.
Economic Impact
The consumption drop in April was twice as large as historical trends would suggest and was comparable in magnitude to households’ response to Russia’s war in Ukraine in early 2022. The ECB argued that this suggests the confidence channel is particularly strong in the case of large shocks that are widely perceived as such by consumers.
Nominal consumption growth declined to around 2.5% year on year in April, with the decline driven by higher income households cutting discretionary spending. The ECB said this reinforces the view that the slowdown is not the result of binding income constraints but rather of households postponing purchases when they have the scope to adjust the timing of their spending.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
