Even as many advanced economies have returned to growth after the pandemic, consumer confidence levels remain subdued and below pre-COVID levels. According to OECD data, consumer morale across wealthier nations in April 2024 was still 1.6% lower than in April 2019.
The prolonged hit to household finances from high inflation is a major factor weighing on the public mood. While price rises have moderated, the cumulative increase means the cost of living is still around 20% higher than early 2021 levels in places like the UK and Eurozone. Wage growth has failed to keep pace, leaving many feeling a squeeze on purchasing power.
The effects show up in sluggish household consumption trends over the past four years, with spending in the UK and Eurozone basically stagnant – a lack of growth not seen since the global financial crisis. In the U.S., personal income growth has significantly lagged its long-term average since 2020.
Economists argue the combination of formerly high inflation, lower real wage growth, and tighter monetary policy with higher interest rates have yet to be fully offset by the economic rebound. Repeated economic shocks from the pandemic, cost-of-living crisis, and geopolitical tensions have also weighed on sentiment.
The subdued consumer mood creates challenges for politicians campaigning in major elections this year where the health of the economy is a key issue. Terms like “vibecession” and “silent depression” reflecting the lingering gloom have gained traction, particularly in the U.S.
While growth prospects are brighter in the U.S. than Europe, the University of Michigan’s consumer sentiment index hit a 6-month low in May on worries over inflation, unemployment and interest rates. Restoring consumer optimism remains an obstacle as the recovery matures.
