Eurozone consumer confidence dropped more than expected in March, in particular because of concerns about the economy and increasing trade tariffs. The decline comes amidst Germany’s approval of a large fiscal stimulus package, although economists have urged caution in calling into question its immediate effect.
Consumer Confidence Declines More Than Estimates
In March, eurozone economic sentiment fell to -14.5 points from -13.6 in February. This down was starker than the market was forecasting, as the redactions were for -13 points. Despite the slight boost seen in the latest reading, data collected by the European Commission between 1 and 20 March shows that again consumer fears are mounting over the region’s economic recovery and external challenges facing the economy, especially a possible inflationary shock from US trade import tariffs.
Sentiment among consumers plummeted as fears mounted over retaliatory tariffs between the United States and the EU. The European Central Bank (ECB) President Christine Lagarde stated that such tariffs would lower growth in the eurozone by 0.5 percentage point while also applying upward pressure on inflation by a comparable number. The US will begin working against European imports starting in early April; the EU’s counter-attack will start at mid-April.
Germany’s Fiscal Package: Questions Remain
Germany’s upper house of parliament, the Bundesrat, has approved a big fiscal spending package, including a €500 billion fund for infrastructure and for eased borrowing restrictions for defence. The policy reversal is considered a departure from decades of fiscal prudence and has been described by some economists as a potential “game changer.” (It’ll take a while to balance the stimulus; economists are still responding about the one-time slope.)
Economists Warn that Immediate Impact is Unlikely
While financial markets reacted positively to the German fiscal announcement, economists warn that actual economic benefits could take years to come through. The full impact of the package may not be felt until the second half of 2026 or more concretely from 2027 to 2030 if the spending is productive, said Ruben Segura-Cayuela of Bank of America. This would require structural changes and joint fiscal responsibility for the fiscal switch to be sustainable in the long term.
The Future: What Yesterday’s News Means for Today
The euro dropped 0.5% against the US dollar yesterday and was set for a weekly decline. Yields on eurozone sovereign bonds fell likewise, German 10-year Bunds as well as Italian 10-year BTPs both falling. Shares in Europe fell even lower, with the STOXX 50 and the STOXX 600 on the closing low. Airline shares were among the biggest casualties, with International Airlines Group and Ryanair Holdings plc among those hardest hits after Heathrow Airport in London shut down. The macroeconomic climate suggested concerns about a cooling economy and early on the effect of the trade tariffs.
The drop in eurozone consumer confidence suggests that the region’s economy is increasingly vulnerable to outside forces — like the looming trade tariffs. The gulf between what the market was expecting and actual confidence numbers underscore how susceptible consumer sentiment may be to geopolitical and economic uncertainty. The European Central Bank’s warnings about the possible effects of tariffs have clearly gotten through to consumers, whose outlook has darkened.
But Germany’s spending is in its own kind of complicated plane, even if encouraging. Optimism bordering on euphoria is not a bad thing, but is tempered with sober reflections on the timeframes for development and potential long-term rewards. Now how effective this package will be really depends on where these money will go and if there is a structural reform that would guide towards a sustainable economy. The economists’ caveats express a desire for realism, that fiscal policy works — but a lagged one, usually.
The market moves (weaker euro, lower bond yields) show uncertainty. The disruption at Heathrow Airport adds to the travel sector’s woes and underscores how vulnerable sectors of the economy that depend on international travel and commerce still are. And don’t forget trade frictions and the effects of adjustments to fiscal policy and the sectoral disruption effects. The next few months should prove critical in determining how far these factors are relevant for the outlook of the eurozone economy.
