Energy shock from the Iran war could weigh on Eurozone consumer spending

We’ve cut our Eurozone consumer spending forecast by 0.5ppts to 0.9% growth in 2026. Aside from the hit to purchasing power from higher energy prices, consumption will likely also suffer from weaker household sentiment, higher precautionary savings, and higher interest rates. A quick end of the conflict might mitigate but won’t fully offset the negative impact.

What you will learn in this report:

• The most direct impact, though, will come from higher inflation. We expect the headline measure to average 2.9% this year, up 1.2ppts from our pre-war baseline, reducing real earnings.
• The energy price rise will be the main event, but it will feed through into the prices of other goods as well.
• Consumer confidence is very sensitive to the price of frequent out-of-pocket purchases like fuel. The price shock will curb households’ appetite to spend, especially on discretionary durables and services.
• Energy shocks affect consumers unevenly, with lower-income households worse off, in turn hitting the consumption of goods. Higher fuel costs will also impact transport services.
• We expect a largely uniform impact on consumer spending across the main European markets, but Mediterranean economies may benefit slightly from redirected tourism flow from the Gulf.