As geopolitical tensions continue to rise, particularly related to the ongoing military conflicts in Ukraine and the Middle East, consumer sentiment in the Euro area has shown notable deterioration.

The European Central Bank's Consumer Expectations Survey (CES) indicates a significant shift in perceptions among consumers, with an increasing proportion anticipating economic recession and impending worsened personal financial situations.

These concerns began escalating in the latter half of 2024, coinciding with real income recovery fueled by wage growth and decreasing inflation.

The CES data for February 2025 reveals that euro area consumers are responding negatively to anticipated prolonged military engagements.

The survey employed three hypothetical scenarios regarding the duration of these conflicts: a quick resolution within three months, a one-year extension, and a protracted conflict lasting three years or longer.

Respondents expressed that their economic outlook, along with expectations for inflation and growth, significantly worsens with the presumption of prolonged conflicts.

Expectations around household financial wellbeing also align with these survey results, indicating that consumers foresee a greater risk to the overall economy compared to their personal circumstances.

Many consumers appear to believe they can weather economic downturns better than the economy at large, potentially due to expectations of government support.

Additionally, consumer sentiment has been observed to influence actual spending behavior, suggesting that the apprehension related to geopolitical factors may adversely affect economic growth.

The December 2024 CES indicated heightened concern among lower-income households toward geopolitical risks, revealing a correlation between economic vulnerability and heightened anxiety regarding financial situations.

The data further illustrates that consumer expectations about house prices are less volatile in response to geopolitical tensions, possibly reflecting the resilience of the Eurozone housing market during recent years.

Conversely, spending decisions are notably tempered by worries over geopolitical developments, which may precipitate a slowdown in economic growth in the Euro area, despite increases in real incomes.

In a parallel economic context, the European Union has moved to address trade tensions with the United States, particularly against the backdrop of US-imposed tariffs.

In early April 2025, European Commission President Ursula von der Leyen announced a proposal to eliminate tariffs on all industrial goods traded with the US as a strategic response to the American administration's ongoing trade measures.

The US has enacted tariffs, including a 20% import levy on EU products, fueling further trade conflicts.

EU Trade Commissioner Maroš Šefčovič has indicated that this offer was made during recent trade discussions with US counterparts, reflecting Brussels’ intent to seek expansive negotiations over existing trade barriers.

As tensions escalate, the potential for retaliatory measures remains high, with the EU considering tariffs on imports from the US, which might include a range of sectors given the breadth of the initial US tariffs.

The EU Commission has faced pressures from member states to act decisively against US trade policy, while also looking to create a united front in negotiations.