ECB says Iran war hit eurozone spending harder than expected

Euro-zone household consumption fell sharply in the early weeks of the Iran war, with the decline driven primarily by uncertainty rather than inflation, according to research published Monday in the European Central Bank's economic bulletin.reuters

The consumption drop in April was twice as large as historical trends would suggest and comparable in magnitude to households' response to Russia's war in Ukraine in early 2022, the ECB said. Consumer confidence fell by 12 points between February and April after the conflict began, and spending momentum "softened materially," the bulletin found.finimize+1

Higher-Income Households Leading the Pullback

The ECB researchers, including Neus Dausa i Noguera, Maria Dimou, and Omiros Kouvavas, found that the spending decline was concentrated among higher-income households cutting discretionary purchases, while essential spending on housing and food remained resilient. After hovering around 3%-4% from mid-2024, nominal consumption growth declined to around 2.5% year on year in April.bloomberg+2

"This reinforces the view that the slowdown is not the result of binding income constraints but rather of households postponing purchases when they have the scope to adjust the timing of their spending," the ECB said.reuters

Confidence, Not Cost of Living

The bulletin argued that the "confidence channel" is particularly strong during large shocks widely perceived as such by consumers. While households feared that rapid inflation caused by the conflict could erode real incomes — with 40% of those surveyed saying they did not expect this income loss to be recouped — the primary mechanism was precautionary behavior rather than an actual cost-of-living squeeze.finimize+1

The pattern suggests eurozone consumption may be prone to sudden pauses and rebounds rather than a smooth downturn, since confidence-led slowdowns can reverse quickly if uncertainty fades.finimize