Eurozone Consumer Spending Plunges in May Amid Rising US Trade Tariffs

Amid escalating global trade tensions, consumer spending across the eurozone contracted significantly in May, marking its sharpest monthly decline in nearly two years. This downturn, largely attributed to heightened uncertainty surrounding US trade tariffs, underscores the delicate interplay between geopolitical policy and economic stability across European markets.

• Eurozone consumer spending contracted sharply in May, representing its steepest decline in nearly two years.
• Eurostat data revealed a 0.7% monthly decrease in eurozone retail trade volume for May, the most substantial contraction since August 2023.
• The slowdown was broad-based, affecting all major retail categories and most member states, with Sweden, Belgium, and Estonia reporting the largest drops.
• European financial markets remained largely subdued following the report, with the euro depreciating against the dollar.
• The US “Liberation Day” tariff package, including potential escalations up to 50% for the EU, is now slated for August 1.
• Only China, the United Kingdom, and Vietnam have secured temporary tariff exemptions, while additional tariffs are threatened for nations aligning with ‘anti-American policies’ of the BRICS bloc.

Eurozone Retail Performance Details

Official Eurostat data reveals a seasonally adjusted 0.7% decrease in eurozone retail trade volume for May, with the broader EU experiencing a 0.8% decline from April. This contraction, consistent with forecasts, represents the most substantial monthly downturn since August 2023. On an annual basis, eurozone retail sales growth decelerated sharply from 2.7% in April to just 1.8% in May, marking the weakest expansion since July 2024.

The slowdown was pervasive, affecting all major retail categories. Sales of food, drinks, and tobacco decreased by 0.7%, non-food products (excluding automotive fuel) fell by 0.6%, and automotive fuel saw the sharpest decline at 1.3%. At the national level, Sweden reported the largest monthly contraction at -4.6%, followed by Belgium (-2.5%) and Estonia (-2.2%). Conversely, Portugal (+2.1%), Bulgaria (+2.0%), and Cyprus (+1.0%) managed to record increases.

Market Response and Investor Caution

European financial markets remained largely subdued following the release of the retail sales report, as investors closely monitored ongoing US trade policy developments. The blue-chip Euro STOXX 50 index stabilized near 5,300 points, and the broader STOXX 600 remained unchanged at 541. The euro depreciated by 0.3% to $1.1730, while 10-year German Bund yields held steady at 2.57%, collectively reflecting a cautious wait-and-see approach from market participants.

Impact of Evolving US Trade Policy

This prevailing market caution is deeply intertwined with the evolving US trade agenda under President Donald Trump. An impending wave of tariff warning letters is anticipated for nations with significant trade surpluses with the United States. Commerce Secretary Howard Lutnick confirmed that the “Liberation Day” tariff package, originally planned for early July, is now scheduled for August 1. This follows a previous 20% import tax imposed on EU-manufactured goods in April, which was subsequently reduced to 10% amidst market instability. A critical deadline looms for the European Union to secure an agreement, aimed at preventing potential tariff escalations up to 50% by Wednesday. To date, only China, the United Kingdom, and Vietnam have successfully secured temporary exemptions. Furthermore, President Trump issued a warning that any country aligning with ‘anti-American policies’ of the BRICS bloc will face an additional 10% tariff without exception, thereby intensifying the global trade landscape.