Falling eurozone retail sales underscore the softness of household consumption
ING's June eurozone retail sales commentary underscores a subdued consumer backdrop, with a 0.3% month-on-month decline and a slowdown in annual growth to 0.7%. The note argues that consumption was not a major growth driver in Q2, pointing to energy price pressures on lower-income households and uncertainty hitting discretionary spending. While some improvement is expected in Q3, ING stops short of forecasting a consumption boom, citing a sticky savings ratio. This narrative sits against a consensus that expects a gradual EUR/USD recovery, with firms like JPMorgan targeting 1.10 by March 2026, though the data suggests downside risks to that view.
What the desk is arguing
Per the full note from ING, the June retail sales print of -0.3% month-on-month (after a +0.4% rise in May) confirms that the eurozone consumer remains a laggard, not a driver, of growth. The year-on-year pace cooling from 1.9% to 0.7% reinforces the message that household demand is soft as the second quarter ended.
The note highlights that higher energy prices have disproportionately hit lower-income households, limiting their ability to smooth consumption, while elevated uncertainty has led higher-income households to pull back on discretionary spending. These dynamics, per ING, are why the eurozone is not seeing the kind of consumption-led rebound visible in the US.
The desk argues that while employment expectations improved in July, offering some support for Q3, a genuine consumption boom would require a meaningful decline in the savings ratio—something that looks unlikely in the near term. This implicitly rejects the alternative read that the softness is temporary and that pent-up demand will drive a sharp recovery.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Eurozone retail sales fell 0.3% month-on-month in June, slowing year-on-year growth to 0.7%.
- 02ING sees consumption as a drag on Q2 GDP, with energy costs and uncertainty weighing on households.
- 03Some improvement is expected in Q3 on better employment expectations, but no consumption boom is forecast.
- 04A sustained decline in the savings ratio is needed for a stronger consumer recovery, which looks unlikely near-term.
Market implications
Watch EUR/USD for a downside bias in the near term, as soft consumption data could keep the ECB cautious and cap euro upside. A break below the 1.075 level would open the door to a retest of the lower end of the consensus range, with the next major catalyst being the September ECB meeting.
Risks to this view
An upside risk is a sharper-than-expected drop in the savings ratio, which would fuel consumption and support the euro. Conversely, escalation of the Middle East conflict could push energy prices higher again, exacerbating the consumer drag and invalidating the expectation of modest improvement.
Older quick take Quick take Published 10:10 Falling eurozone retail sales underscore the softness of household consumption Eurozone retail sales fell by 0.3% in June, reinforcing the view that consumption was not a major driver of growth in the second quarter. Some improvement can be expected, but a genuine consumption boom looks unlikely at this stage Eurozone retail sales fell by 0.3% in June Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Peter Vanden Houte Chief Economist, Belgium, Luxembourg, Eurozone Consumption ended the second quarter on a soft note Eurozone retail sales fell by 0.3% month-on-month in June, following a 0.4% increase in May. On a year-on-year basis, the pace of growth slowed from 1.9% to 0.7%.
Although retail sales account for only about a third of total consumer expenditure, they remain an important proxy for household consumption. On that basis, the second quarter ended on a rather subdued note for the consumer. As the ECB discussed in its monthly bulletin, higher energy prices have weighed especially heavily on lower-income households, which have a more limited ability to smooth consumption over time.
At the same time, higher-income households may have scaled back discretionary spending in response to elevated uncertainty. Some improvement likely Today’s figures underline that, unlike in the US, the European consumer has not been a major engine of growth recently. So where does this leave us?
Uncertainty surrounding the outcome of the Middle East conflict has not fully disappeared, although energy prices have eased. According to the European Commission’s economic sentiment survey, employment expectations improved significantly in July. This should provide some support to consumption in the third quarter, even if it is going too far to forecast a consumption boom.
For that to happen, a more meaningful decline in the savings ratio would be needed, which looks unlikely in the near term. GDP Eurozone Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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