Matěj Macák, a 24-year-old materials engineer in the Czech Republic, has a confession to make: he's afraid to spend money. He's been saving aggressively, but worries he's taken it too far. Macák's frugality is a symptom of a broader trend in Europe, where consumers are doubling down on thriftiness.
Europeans have lagged behind the U.S. in terms of economic growth, and their reluctance to spend is a key reason why. While Americans are maxing out credit cards, Europeans are saving more and spending mostly on essentials. The resurgence in inflation sparked by the war in Ukraine now threatens to deepen the consumer malaise.
Household consumption has risen 5.5% in the eurozone and 2% in the U.K. since 2019, compared with 18% in the U.S. If households were to return to their prepandemic saving levels, eurozone gross domestic product would be 1.3% larger, according to Marieke Blom, chief economist at the Dutch bank ING.
Measures like tax cuts could help bolster spending, but many governments are constrained by high debt levels, defense investments, and aging populations. Eurozone households saved around 15% of their disposable income last year, compared with around 12.5% before the pandemic. In the U.K., the savings ratio is almost twice as high as before the pandemic.
Some Europeans, especially younger ones, say they are worried government pensions won't be able to support them in the future as aging populations strain welfare systems. Vincent Boucard, a 32-year-old strategy consultant in Paris, started budgeting a few years ago and aims to save about 50% of his paychecks.
Many Europeans remain skeptical of investing, keeping about a third of their financial assets in cash or bank accounts, earning low interest rates that can lag behind inflation. Channeling part of the trillions of euros sitting in households' bank accounts into more-productive investments would also help the economy, economists say.
