Green shoots for European consumption, but still below pre-covid trend - Barclays
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GREEN SHOOTS FOR EUROPEAN CONSUMPTION, BUT STILL BELOW PRE-COVID TREND - BARCLAYS
The increase in real disposable income, paired with an expected decline in interest rates is likely to uplift the household consumption in Europe, but it may still remain below pre COVID-19 levels, Barclays strategists said in a note.
They expect real private consumption to grow around 0.3% every quarter until the end of 2025 both in the euro area and in the UK.
Sustained growth is likely to be driven by rising real wages and falling interest rates, after the energy crisis dampened consumer spending over the last couple of years.
But it might not be strong enough to close the gap versus the pre COVID-19 trend, they pointed out.
Barclays said that a potential upside to its consumption growth forecasts could come if households were to reduce their saving rate, which remains higher than pre-pandemic levels.
"However, at the current juncture, we find this unlikely and data do not provide much support for it. Consumer confidence, although improving, remains low and the recent increase in the unemployment rate in the UK is likely to keep consumers erring on the side of caution", they added.
In their view, Heineken HEIN.AS and Diageo DGE.L in beverages, Unilever ULVR.L in food and Nivea owner Beiersdorf BEIG.DE in health and personal care are the best positioned to "play with an improved European consumer" over the next few quarters.
In airlines, there is concern that the post-COVID spending bounce could fade, with Ryanair RYA.I recently guiding summer unit revenues lower to 0-5% growth from 5-10%, although even this lowered growth guidance still shows strong consumer demand, Barclays said.
(Matteo Allievi)
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