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March 19, 2020

Coronavirus to weaken Europe consumer spending; rebound extent uncertain

Although the coronavirus pandemic will trigger a sharp deterioration in European Union consumer spending in the first half of the year, the region's positive fundamentals before the outbreak will likely support consumption once the virus is contained, Moody's Investors Service said on Thursday (19 March).

By Olly Wehring

Although the coronavirus pandemic will trigger a sharp deterioration in European Union consumer spending in the first half of the year, the region's positive fundamentals before the outbreak will likely support consumption once the virus is contained, Moody's Investors Service said on Thursday (19 March).

Disruption will slow economic activity and consumption in a large number of countries, mostly in the first half of 2020.

Beyond the direct consequences of the social distancing measures implemented to limit the outbreak, the extent of the impact will depend on how governments support affected companies and prevent mass redundancies.

"Before the coronavirus outbreak, EU consumption was growing steadily thanks to record high employment, positive nominal and real wage growth," said Ruosha Li, a Moody's assistant VP and analyst.

"Although the disruption will be severe, the overall impact will depend on the length of the lockdowns currently implemented."

Containment measures will significantly affect all travel related sectors, as well as customer facing service sectors.

Durable consumer goods, such as autos, are especially exposed as the uncertainty deters consumers from committing to all but essential purchases.

Low interest rates have improved debt affordability, but leverage – measured as household debt to income – remains near historic highs in large part because of still rising house prices.

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