The ECB: Europeans expect rise of the interest rates and costs as well as lower disposable income

Europeans expect a decline in their disposable income, an increase in property prices, and a slight rise of inflation, according to the latest European Central Bank’s (ECB) Consumer Expectations Survey conducted in April. Inflation perceptions have not changed over the past 12 months but are expected to increase next year. At the same time, Europeans were pessimistic about the economy in April – growth expectations were mostly negative, while unemployment expectations pointed towards an increase.

Expectations for nominal income growth among consumers over the next few months fell to 0.9%, compared to 1% in March. The assessment of nominal expenditure growth for the past year showed a slight decline compared to March, and for the coming year, consumers with all income levels expect their expenses to increase.

However, there is optimism among homeowners – they expect the price of their home to increase by an average of 3.2% over the next 12 months, up 0.01 percentage points from the same survey in March. Households with the lowest incomes believe that the increase will be greater (3.6%), while those with high incomes expect more moderate growth of 3%. Compared to last year, both groups are converging in their expectations.

At the same time, consumers believe that mortgage rates will increase over the next 12 months, with those with low incomes expecting a larger increase, while those with high incomes anticipate a more moderate one. The net share of people noting a tightening of credit access has slightly increased at the expense of those who think there will be relief. In April, a total of 20.8% of Europeans bet on tighter mortgage lending conditions, up from 15.5% in March. The share of people applying for credit over the past three months reached 15.6% in April, up 0.6 points from January.