Investors should focus on the European consumer market rather than the US counterpart, UBS strategists said in a Wednesday note.
One key point behind UBS’s thesis is the acceleration of real wage growth in Europe and the UK to 2.1% and 3.1%, respectively, surpassing that of the US.
“We think employment trends in Europe are picking up relative to the US,” UBS strategists said.
Furthermore, European and UK consumers have significantly higher levels of excess savings compared to their US peers. In Europe, excess savings are at 8% of GDP and 16% in the UK, compared to just 2% in the US. This higher level of savings provides a buffer against economic shocks and supports stronger consumer spending.
Consumer confidence is also a factor favoring the European market, with UBS strategists highlighting a pick-up in consumption in Europe and the UK compared to the US.
“We believe the UK consumer looks particularly well set (with greater political certainty than Europe, according to the polls),” UBS strategists noted. “In 2025, UK consumption growth is forecast by UBS to be above that of the US.”
Moreover, the European consumer sector is poised to benefit from several macroeconomic factors.
UBS argues that if there is a downside risk to oil prices, a stronger Euro or Sterling, and additional rate cuts by the ECB, the European and UK consumer markets will be well-positioned. They noted that retailing and consumer services have outperformed 100% of the time in the 12 months following ECB rate cuts.
In contrast, the outlook for the US consumer, particularly at the lower end, is not as favorable, with wages expected to slow to 3% and employment proxies suggesting a slowdown.