Income and Expenditure in Western Europe

November 2022

Over the near term, mounting inflationary pressure is set to limit purchasing power of the European population and curb discretionary spending growth. In the long term, however, consumer incomes are set to expand, remaining the third largest globally, due to high productivity, investments in infrastructure and robust technological advancement. In addition, low gender and regional inequality will continue to support relatively equal income distribution in Western Europe countries.

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Key findings

Disposable income grows slowly, yet to remain high by global standards

Total disposable income is set to rise by 22.2% in real terms over 2021-2040, and disposable income per household is set to remain the third largest globally, reaching more than USD65,000 by 2040. Nevertheless, near-term outlook is clouded by higher energy prices and trade disruptions stemming from the war in Ukraine, which could result in potential destabilisation of businesses, constraining growth in consumer incomes.

Savings ratio to remain elevated post-pandemic

Historically, Western Europeans saved about 10% of their income, but since the start of the pandemic savings ratio reached 17% and is expected to remain elevated over the forecast period. A higher level of savings is expected to partly offset pressure from rising prices, bolstering spending in the face of economic uncertainty.

Income inequality to rise slightly, yet remain low by global standards

Low gender and regional inequality will continue to support relatively equal income distribution in Western European countries. However, in 10 out of the 17, either highest earning (class A) or lowest earning (class E) social class are set to expand at the fastest rate over the forecast period, indicating that income inequality is set to slightly increase.

Proportion of discretionary spending to increase slightly

Extensive expenditure on housing due to high rented and mortgaged housing rates makes spending on essentials exceptionally high in Western Europe. Nevertheless, over 2021-2040, spending on discretionary categories is expected to witness faster expansion, compared to essentials, with hotels and catering, as well as leisure and recreation recording among the largest expenditure growth rates.

Scope
Key findings
Generous fiscal support to stimulate income growth, yet near-term challenges remain
Western Europeans to sustain elevated savings ratios post-pandemic
Benefiting from expanding equal rights policies, gender income gap to remain relatively low
Consumer purchasing power threatened by rising inflation over the short term
Spending on essentials to remain relatively high in Western Europe
Hotels and catering to witness the fastest growth due to recovering tourism
Household expenditure by decile to remain fairly similar in most countries
Couples with children to enjoy the largest spending power among all household types
Consumers aged 45-54 to become the highest per capita earners by 2040
Remaining relatively low by global standards, income inequality is set to slightly increase
Denmark, Norway and Switzerland to offer the highest potential for luxury brands
Western Europe to sustain relatively low levels of income inequality
Urban/Rural income gap to keep shrinking, supported by the shift towards remote working
Austria: Share of income and wealth of the middle segment
Austria: Middle-income households
Austria: Essential spending by middle-income households
Belgium : Share of income and wealth of the middle segment
Belgium : Middle-income households
Belgium : Essential spending by middle-income households
Denmark: Share of income and wealth of the middle segment
Denmark: Middle-income households
Denmark: Essential spending by middle-income households
Finland : Share of income and wealth of the middle segment
Finland : Middle-income households
Finland : Essential spending by middle-income households
France : Share of income and wealth of the middle segment
France : Middle-income households
France : Essential spending by middle-income households
Germany : Share of income and wealth of the middle segment
Germany : Middle-income households
Germany : Essential spending by middle-income households
Greece : Share of income and wealth of the middle segment
Greece: Middle-income households
Greece: Essential spending by middle-income households
Ireland: Share of income and wealth of the middle segment
Ireland: Middle-income households
Ireland: Essential spending by middle-income households
Italy: Share of income and wealth of the middle segment
Italy: Middle-income households
Italy: Essential spending by middle-income households
Netherlands: Share of income and wealth of the middle segment
Netherlands : Middle-income households
Netherlands: Essential spending by middle-income households
Norway : Share of income and wealth of the middle segment
Norway : Middle-income households
Norway : Essential spending by middle-income households
Portugal : Share of income and wealth of the middle segment
Portugal : Middle-income households
Portugal: Essential spending by middle-income households
Spain : Share of income and wealth of the middle segment
Spain : Middle-income households
Spain : Essential spending by middle-income households
Sweden : Share of income and wealth of the middle segment
Sweden : Middle-income households
Sweden : Essential spending by middle-income households
Switzerland : Share of income and wealth of the middle segment
Switzerland : Middle-income households
Switzerland : Essential spending by middle-income households
Turkey : Share of income and wealth of the middle segment
Turkey : Middle-income households
Turkey : Essential spending by middle-income households
United Kingdom : Share of income and wealth of the middle segment
United Kingdom : Middle-income households
United Kingdom : Essential spending by middle-income households
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