What Consumer Confidence Reveals About Europe’s Recovery

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Sara Murray: Welcome to C-Suite Perspectives, a signature series by The Conference Board. I'm Sara Murray, Managing Director, International at The Conference Board and the guest host of today's episode. Today, we're discussing the latest results from The Conference Board's Consumer Confidence Index for the Euro Area and what they tell us about the outlook for household spending and economic growth across the region. 

The latest findings suggest that consumer confidence improved slightly in May following a sharp deterioration earlier in the year. However, sentiment remains firmly in pessimistic territory, reflecting ongoing concerns about inflation, energy prices, and the broader economic environment. Before we dive into the latest results, I thought it would be useful to take a step back and explain exactly what the Consumer Confidence Index is and why it matters for business leaders. 

Joining me today to discuss these findings is Dino Panitsas and Matei Farcas, members of the ESF Center in Europe. So Matei, what exactly is the Consumer Confidence Index and why is it such an important indicator for understanding the Euro Area economy?  

Matei Farcas: At its core, the Consumer Confidence Index is based on a survey that tracks the answers of a representative sample of households across European economies. 

It captures their perceptions of both their personal finances but also the broader economic environment they live in. The indicator serves two main purposes. First, you have the overall index based on four questions that gives you a valuable and timely proxy for domestic demand in each country, allowing you to answer questions like, are Greek, German, Spanish, Portuguese households likely to spend in the foreseeable future; but also why they're more or less likely to. Are they worried about their future financial situation, the state of the economy? And this is the second dimension. 

Because we standardize every question for every Euro Area country, firms get a timely overview of each country's situation as experienced by the people living there. It complements the bird's-eye view that macroeconomic indicators would give us with something more grounded and actionable. 

Sara Murray: In many ways, it's like an early warning system for the economy. Before we see changes in spending or investment or growth, we will see shifts in how households feel about their finances and the economic outlook. That's why it's a valuable leading indicator.  

Matei Farcas: Indeed. And we can have information about why exactly it is the case, do they feel bad about their savings, about the economic situation, and so on and so forth.  

Sara Murray: Okay. Why did The Conference Board develop its own standardized version?  

Matei Farcas: The European Commission's index, which is the one that was reported on for the past few years, measures the gap between the share of positive and negative responses, and this gap is called the balance—so just how many more negative than positive responses there are for any set of questions. By itself, this gives us information about overall optimism, pessimism at any point in time but it's quite hard to interpret in isolation. If I say that Q9 on spending intentions sits at -21, you would know that it's a difference between positive and negative, and that it means that there are 21% more negative answers than positive ones. 

But your next question is, how does that compare to the previous months? How do people usually answer? Is a 1% increase good or bad, especially compared to other periods? It makes it quite hard to appreciate a situation without a direct comparison with another point in time. And on top of that, it's hard to make cross-country comparisons because you have cultural habits and national conditions that make households answer differently on average from question to question. 

So to answer this, we standardize the measure by rebasing it around each question's long-term average. From 1985 to 2026, households consistently reported negative financial expectations. Very well, so be it. If that is a constant for 40 years, then we use it as a baseline to see how much more negative or positive things have become at any point in time. 

What's important for businesses is not the long-run confidence but rather the month-to-month changes, and this is what we emphasize by standardizing. Because these deviations are standardized, they become comparable not only across time but also across countries. We don't express changes in percentage points but rather deviations from the long-run average and, in turn, this gives us clear boundaries delimiting optimism and pessimism. 

Zero is the baseline and any positive number is an optimism, any negative number is pessimism. Plus or minus 50, muted optimism, muted pessimism, and the higher it goes, the better it is or the worse it is.  

Sara Murray: That's a really important distinction. What you've done is make the data easier to interpret across countries and over time by measuring confidence relative to historical norms. That allows us to better understand whether consumers are genuinely optimistic or pessimistic, rather than simply looking at raw survey balances.  

Matei Farcas: Yes. Because of the way it is standardized, you can take any cross-section across time, any month in time, and you would know that specific number means it is this much higher or lower than the average. And you don't have to compare against any other point in time and you can also compare countries together. This is the whole point of the exercise.  

Sara Murray: Why should business leaders pay attention to consumer confidence?  

Matei Farcas: Consumer confidence, again, is a window into how households are thinking and planning, and this has direct implications for business strategy. 

It tells us how acutely people feel price increases, whether they intend to spend now or hold back, or how they assess the current and future state of their economy. Taken together, all of these signals allow us to bridge the gap between the macroeconomic aggregate stories and the actual micro,in-the-field dynamics. 

Just as a reminder, economics is a social science. It's not an exact one and it's important to supplement any big macroeconomic aggregate data that we have on the countries with direct insights from households, which allow us to build sharper and more grounded narratives to inform strategy.  

Sara Murray:That's really the business relevance here. Consumer spending is an important driver of economic growth in Europe, so understanding how households are feeling today can provide clues about demand conditions tomorrow.  

Matei Farcas: Demand conditions, where the economy is going, how they feel about the situation, and so on and so forth.  

Sara Murray: Okay. Matei, thank you for helping us understand the methodology behind the index. 

Now that we have that foundation, let's turn to Dino to the latest survey results. Dino, talk us through the latest results. What's the big broader picture regarding the Euro Area's consumer confidence in May and how should we interpret it?  

Konstantinos Panitsas: Thank you, Sarah. The headline is that consumer confidence increased somewhat in May but this happened from a very weak starting point in April, as you also said in your introduction. 

The index, to put some numbers, moved from -160 a month ago to roughly -130 in May. So there is some improvement but overall, European consumers are still clearly pessimistic and confidence remains well below where it was in February, right before the latest energy shock basically began. 

To put that into perspective, it's useful to compare these numbers with the numbers we had in previous shocks. The good thing here is that the May reading is not nearly as weak as the levels we observed during the COVID crisis, where the index was nearly at minus 200, and it's also nowhere near the lows reached during the first energy shock in 2023, right after Russia's war against Ukraine. 

Remember back then, the index had plunged to around minus 300. This is good news but, of course, the trend in recent months shows that consumer confidence has clearly weakened. This is why when we talk about the latest data and the small uptick we've observed in May, for me, it's more useful to interpret it as a sign of stabilization rather than a sign of recovery. 

Sara Murray: Yeah. So confidence has stabilized somewhat after the sharp deterioration we saw in 2025 but the message is that consumers are still cautious. It's not a broad recovery in sentiment; it's more a pause in decline.  

Konstantinos Panitsas: That's correct.  

Sara Murray: What's driving the pessimism? 

Konstantinos Panitsas: To understand that, we need to look beyond the headline number. As Matei explained, the Consumer Confidence Index is based on four questions. The first one is how households view their finances compared to a year ago. The second one is how they expect their finances to change in the year ahead. Third, how they see the broader economic outlook. Fourth, whether they plan to make major purchases in the next 12 months. 

In May, what we observed is that confidence was still negative across all four areas and European consumers were especially down a bit about their personal finances and the broader economic outlook. 

Now, the area that improved more clearly was major purchasing intentions, but I wouldn't read too much into this result. My interpretation is that this was mainly because of the fact that energy prices stopped worsening from the highs they had in March and April. But this doesn't mean, of course, that consumers feel comfortable again. 

Sara Murray: It sounds as though households are caught between some improving fundamentals. We've got easing inflation but also continued uncertainty around the broader economy. Even if financial conditions are a bit less strained, people are still quite hesitant about what's next. 

Konstantinos Panitsas: That's correct. This is why we observed all these negative numbers when you look at the details in May, basically.  

Sara Murray: I've noticed that you also report on the evolution of other indicators of consumer confidence not directly feeding into the overall index. Why is this useful and what can we learn from them? 

Konstantinos Panitsas: Yeah, that's indeed an important point because while the headline index tells us where confidence is going, these additional indicators also help us understand why it's moving there in the first place. Even if they're not part of the headline calculation, they still play an important role in shaping consumer behavior. Over the past few months, there have been two indicators that have really stood out. The first one is inflation expectations over the next 12 months and the second one is unemployment expectations a year out. 

On inflation, consumers still expect prices to remain under pressure over the coming months. That matters because if households expect prices to rise, they tend to become more cautious when it comes to spending. The second is unemployment expectations. This was probably the most striking finding we had in our May results because what we've observed over the last months is concerns about job security have been worsening; they have reached their lowest level since May 2021. 

These additional indicators really help us connect the dots. And what I mean by that is the pessimism we're seeing today is not just about current finances or a deteriorating economic outlook. It's also about persistent inflation concerns and rising anxiety about the labor market. Together, these factors really help to explain why consumer confidence remains so weak.  

Sara Murray: I think that's why that broader view is useful, because it helps to understand what's going on beneath the headline number. Like you said, there's financial expectations, spending intentions, inflation expectations, and labor market concerns. It gives a clearer picture of what's really driving consumer sentiment.  

Konstantinos Panitsas: Exactly.  

Sara Murray: Okay, let's zoom into a few key economies. What are some country-level details that you saw standing out in May?  

Konstantinos Panitsas: Sure. Let me start with the large European economies, the Big Four, as we call them, because they account for the majority of private spending in the Euro Area. 

Among them, Spain still looks the most resilient. Its May reading was still hit by the broader shock, meaning the reading was overall negative, but Spanish consumers were noticeably less pessimistic than those in Germany, France, or Italy. And I think this fits very well to the broader macroeconomic picture we have about Spain. Spain still is a country that grows twice as fast as the Euro Area average and this growth has been supported by strong service activity and also resilient domestic demand, and this is reflected in the in the reading. 

Then we have Germany and Italy. Germany and Italy are in a weaker position compared to Spain. In both countries, confidence was hovering around -100 in May. What this means is that there was a monthly improvement but consumers remain clearly pessimistic. This matters because both economies are more exposed to the latest energy shock for a few reasons. They have a much larger manufacturing base, they rely much more on fossil fuels to cover their energy needs, and they rely much more on external demand. Even though when we look at the GDP data for Q1, both economies held up reasonably well. Consumers and households do not seem to be fully convinced that this level of resilience will continue in subsequent quarters. 

France is the weakest case among the Big Four. Spending intentions improved, which is encouraging to some extent. But overall, consumers remain very downbeat about the broader economic outlook. This also lines up quite well with the hard data we have for France. Remember, the French economy stalled in Q1. Household consumption weakened in the first quarter. Private investment fell. At the same time, we see business sentiment losing a lot of ground. 

The country picture, when we zoom in the Big Four, is not that uniform. We, again, have Spain that looks relatively resilient and then we have Germany and Italy that look more exposed. Then you have France, where you see weak confidence seems to reflect a broader loss of economic momentum in the country.  

Sara Murray: It's fascinating, just how different the stories are across Europe's largest economies. But what about smaller economies? Obviously, we always focus on the large ones but where do they stand compared to other economies?  

Konstantinos Panitsas: There are definitely some exceptions. Back to your comment, this is where the country level breakdown becomes so useful. When we focus on the smaller economies, the picture is much more mixed. There is one group where we see confidence remains very weak. These are countries like Greece, Belgium, Austria, and Finland. They continue to report confidence well below their respective long-term averages. 

But there is also a more resilient group of countries—and these are countries like Croatia, Cyprus, and Malta—where we see consumer confidence not being negative but remaining in positive territory and even improving in some circumstances. These are smaller economies where they have benefited in recent years from strong tourism, healthy services activity, and to some extent even some resilient domestic demand. This is why consumer confidence there still holds relatively well. 

The main message is that the weakness in confidence is concentrated in many of Europe's large economies but when you focus on smaller economies, definitely the picture is more mixed. Some of them remain positive and they continue to hold up relatively well.  

Sara Murray: I think it's a really important reminder that the Euro Area isn't a single story, just highlighting how certain smaller local economic conditions can produce different outcomes. 

Konstantinos Panitsas: Exactly.  

Sara Murray: Yeah. We're going to take a short break and be right back with more of my conversation with Dino. 

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Sara Murray: Welcome back to C-Suite Perspectives. I'm your host, Sara Murray, Managing Director, International at The Conference Board, and I'm joined by Dino to discuss the latest findings from our Consumer Confidence Index survey. You mentioned before that inflation expectations and unemployment fears have risen sharply since February. Can you talk us through the trends and why they matter?  

Konstantinos Panitsas: Yep, absolutely. On the first leg of your question, the story is very clear. Headline inflation, as we've seen in recent data, has moved higher again. In May, it stood at 3.2%. At the same time, what we see is that nominal wage growth is no longer rising fast enough to offset this increase in headline inflation. 

What thismeans in real terms, or as we say in inflation-adjusted terms, households are already feeling squeezed again. As a result, confidence has naturally weakened in recent months. And this is not a story only about energy prices. Energy is, of course, the original shock, but price pressures are now starting to show up elsewhere. 

Service inflation, for example, rose at 3.5% in May. This was the highest reading we had in a year and this matters for two reasons. The first one is because services are a large part of household spending and second, it's because they tend to be much more persistent than energy prices. On top of that, we also see that this kind of price pressure has also started to feed into other parts of the consumer basket. For example, in non-energy goods and also in food items. 

The concern is not just that energy prices rose. Now, the concern is that higher energy prices are beginning to pass through into other prices and other goods. We saw this dynamic during the 2023 energy shock. Even though this time the scale is significantly smaller, the transmission mechanism is very similar. This is exactly why we see confidence in the Euro Area declining persistently in recent months.  

Sara Murray: These expectations often matter almost as much as actual economic conditions. If consumers think prices will rise faster or jobs will become harder to find, they're more likely to postpone spending and be a lot more cautious, which obviously then affects economic activity itself. 

Absolutely. Yeah. What About unemployment fears rising? We keep hearing that the labor market is one of Europe's strongholds. Why do consumer worries revolve around the labor market if unemployment remains low?  

Konstantinos Panitsas: That's another very important point. As you said, the labor market has indeed been one of Europe's main sources of resilience in recent years, despite all the shocks that the economy had to deal with. We have already seen that in the data. Unemployment continues to be near record lows. Employment has also held up relatively well. 

But when uncertainty rises, companies usually become more careful and, of course, more measured. They may freeze hiring, they may delay investment, they might reduce working hours, or even reduce headcount. Households can sense that in recent months, the balance of risks from the business's perspective has clearly shifted to the downside. 

This matters because job security is central to spending decisions. If people worry their jobs are going to be less secure, they are less likely to make big purchases and more likely to save instead. So even without the sharp rise in unemployment, increasing fears about the labor market can still weaken confidence and eventually weigh on aggregate demand. 

Sara Murray: I think that's one of the most interesting tensions in the data. It suggests that uncertainty may be affecting perceptions faster than it's actually affecting the labor market.  

Konstantinos Panitsas: Exactly. 

Sara Murray: How does this translate to the broader Euro Area economic outlook?  

Konstantinos Panitsas: The forward-looking picture is fairly straightforward. The latest shock has clearly weighed on consumer confidence, as we have already talked about. Even after this small improvement we saw in May, confidence remains very weak. It's close to its lowest levels in almost two years. This matters because a few months ago, we expected private consumption to be one of the key drivers of the Euro Area's near-term economic rebound. 

Now, the picture has become much more cautious. To be clear, I'm not saying that consumption is about to collapse or that household spending will necessarily reverse, but we should expect private consumption to be less supportive to growth than what we expected before the war in February started. 

This is one of the reasons why we have actually revised downwards our Euro Area growth forecasts. We now expect the economy to grow by just 1% in 2026 and 1.1% in 2027. A few months ago we had projected that the Euro economy would grow around 1.3 to 1.4% over the next two years. So the broader macro story is that the Euro Area recovery has not disappeared but it is a recovery that now looks weaker, more fragile, and more dependent on whether consumers regain confidence and how fast they will regain this confidence again. 

Sara Murray: It seems like the outlook is one of more modest growth rather than a strong acceleration and households are likely to remain cautious rather than that becoming a major engine of growth.  

Konstantinos Panitsas: That's correct. Keep in mind that private consumption accounts for 50% of the Euro Area's total output, right? When you have pressure on one of your key growth contributors, eventually this will also affect economic activity in your region.  

Sara Murray: Yeah. What are the risks to watch for consumer confidence?  

Konstantinos Panitsas: The most important risk is still energy prices. Just yesterday we saw that Iran and Israel exchanged new attacks, which shows how fragile the situation remains in the Middle East. 

The ceasefire has already come under a lot of strain again. This directly affects oil prices. If the conflict escalates, households across Europe would face renewed pressure through higher fuel and energy costs, stronger inflation expectations, and weaker real incomes eventually. In that scenario, consumer confidence would likely weaken again and private consumption would contribute even less to growth in the coming quarters. 

Now, a second risk is the labor market. As I explained, employment for the moment has held up well but if companies respond to this level of uncertainty by slowing hiring or even reducing headcount, then consumers are more likely to scale back in spending and start building up their precautionary savings. 

A third risk I'd like to highlight is what happens on the political front, because political uncertainty can also weigh on the consumption outlook. Think of issues like elections and fiscal debates and policy uncertainty. These are things that can affect how households think about taxes, about jobs, and again, about the broader economy. 

And we have seen this before, right? The French election cycle in June 2024, and even uncertainty about Germany's election announcement later that year were followed by visible shifts in consumer confidence. So this is definitely not a risk to downplay. It's also important to note that over the next couple of years, in 2026 and 2027, we expect about 10 major elections across the Euro Area. Depending on the kind of outcomes that we see, we might, as explained, also see large and significant shifts in consumer confidence, which could have an impact on the consumption outlook.  

Sara Murray: Sounds as though confidence remains quite fragile and consumers are very sensitive to those developments, prices, employment, political uncertainty, and geopolitical events. 

Konstantinos Panitsas: That's exactly the right diagnosis for what is going on now.  

Sara Murray: What do you think the key messages are for business leaders, that they should take away from this conversation?  

Konstantinos Panitsas: I would leave listeners with two key points. The first one is that consumer confidence, as we've said, in May stabilized but it has not recovered. May's improvement is encouraging but consumers remain downbeat, and that means private consumption is now likely to support Euro Area growth less than what we expected a few months ago. 

The second takeaway is that downside risks are still very active. We talked about that before. You can think of higher energy prices, inflationary pressures increasing, labor market concerns, and even political uncertainty. All these things can influence household behavior. 

For business leaders, I think the key message here is to remember that the Euro Area is not moving as one single consumer market. They have to look below the headline number. Decisions that they have to make on pricing, on inventory, marketing, sales targets, all these things should reflect where consumers are actually more resilient and where they're actually under pressure. 

These would be my key messages for our listeners.  

Sara Murray: But I think if there's one theme running through this report, it's that resilience shouldn't be mistaken for confidence. Households, they're holding up better than expected but they're cautious and that means demand should continue to grow but probably at a measured pace instead of a rapid one. 

Konstantinos Panitsas: Yeah. Exactly. 

Sara Murray: Taken together, these findings suggest that, as you said, while confidence has stopped deteriorating, Europe's households,they're not yet convinced about the economic conditions, that they've fundamentally improved. The challenge for policymakers and business alike is how can you turn this stabilization into a kind of more durable recovery in sentiment? 

Konstantinos Panitsas: That's correct. The thing is that there is still a lot of uncertainty. It's not just businesses that have to deal with a lot of uncertainty. This is also now reflected in consumption as well. It's definitely a period where both businesses and consumers have to muddle through. 

Let's hope that the crisis in the Middle East come to an end soon. This would definitely help at least bring some momentum to both business activity and eventually also to consumption as well, which could have a positive impact for the overall Euro Area economy. 

Sara Murray: Thanks for listening to C-Suite Perspectives. Our time is up, and I just want to say thank you, Dino, thank you, Matei, for joining us today. This has been brought to you by The Conference Board. Look forward to next time.  

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