Why tariffs won’t strangle consumer spending

We think the damage from US tariffs on Eurozone consumer spending will be relatively mild. This is crucial for the Eurozone economic outlook, as the gradual rebound in private consumption is the only growth engine at present.

• Consumer spending is less exposed to US tariffs than other GDP components, but not insulated. Tariffs reduce demand for Eurozone’s exporters, which reverberates along the entire supply chain.
• Retaliatory action by the EU on the US affects consumption mainly via higher prices. Two key – and possibly mutually reinforcing – risks are the resilience of the labour market and the impact of uncertainty.
• The impact of the US tariff announcements on April 2 was tempered in our forecast by the effect of Germany’s large fiscal stimulus. But as with tariffs, we expect a mild impact on consumption.