Financial Times: U.S. vs. Euro Area Economic Recovery

By: Daniel Hogan, The Quinnipiac University Economics Research Team

GDP is on track to expand by 2.6% in the US this year, fuelled by strong household spending © Yuki Iwamura/Bloomberg

In early October 2024, The Financial Times published a report detailing the stark contrasts in household consumption between the United States and the Eurozone, emphasizing how anxious Europeans are hoarding savings while American consumers are driving the global economy in the post-COVID era. The full article can be accessed here.

Historically, the U.S. economy has relied heavily on consumer spending, with an average savings rate of just 6.1% from 2010 to 2019, indicating that Americans saved only 6.1 cents for every dollar earned. In contrast, European consumers maintained a significantly higher savings rate of 12.3% during the same period, while the UK averaged 7.5%. Despite these differences, all economic regions experienced similar growth throughout the 2010s.

The COVID-19 pandemic initially caused a temporary spike in savings rates due to stimulus payments and limited spending opportunities. However, as economies reopened, European consumers hesitated to revert to previous spending habits. The ongoing wars in Ukraine and the Middle East have heightened security concerns and energy dependency in Europe, contributing to a shift in consumer behavior. Consequently, Europeans are now saving at a rate of 15.7%, while the UK's savings rate has risen to 10%.

In contrast, Americans, facing fewer immediate threats, have become more comfortable spending, with a savings rate dropping to 5.2%, below pre-COVID levels. This indicates a willingness to maintain lower savings in favor of consumption.

As a result, these differing consumer sentiments are beginning to impact economic growth. The U.S. is projected to experience a 2.6% increase in GDP, while mainland Europe and the UK are showing signs of stagnation, with GDP growth rates of just 0.7% and 1.1%, respectively. Although both sides of the Atlantic have grappled with supply chain disruptions and inflation, the containment of these issues has allowed the American consumer-driven economy to lead the way in driving global economic recovery.