Why UBS is underweight the U.S. consumer and overweight the European consumer

 UBS has shifted its consumer exposure by underweighting the U.S. consumer while overweighting the European consumer, citing diverging macroeconomic trends, income dynamics and balance sheet conditions on either side of the Atlantic, according to its recent note.

UBS said the main risk to the U.S. consumer is a slowdown in consumption growth, particularly at the low end of the income spectrum.

The brokerage forecasts U.S. consumption growth of 2.2% in 2026, down from 2.6% in 2025, with quarterly annualized growth slowing to 1.6% in the first quarter of 2026.

UBS linked this deceleration to several factors already visible in the data. It said leading indicators point to pressure on real wages, with the quit rate consistent with nominal wage growth of about 2.5% to 3% while UBS expects quarterly annualized core personal consumption expenditures inflation to rise to 4.1% in the first quarter.

UBS also noted that the U.S. savings ratio has fallen below model-implied levels and that excess savings accumulated during the COVID-19 period have largely been exhausted, unlike in Europe.

UBS added that labor force growth in the U.S. has slowed to zero from 1.1% previously, limiting the economy’s capacity to sustain consumption growth.

It said employment indicators such as purchasing managers’ surveys, the Conference Board indicators and UBS’s own leading indicators suggest weakening job momentum, while consumer confidence measures remain subdued.

The brokerage flagged that these pressures are more acute for lower-income households, which it said have spent most of their excess savings, hold relatively few financial assets and face higher exposure to goods affected by tariffs.

By contrast, UBS said the European consumer faces a different backdrop, with what it described as upside risks to consensus expectations. While Bloomberg consensus forecasts point to 1.1% consumption growth in Europe in 2026, UBS forecasts 0.9% but argues the balance of risks is skewed higher.

UBS said European real wage growth is forecast at about 1.2% in 2026 and is now marginally above that of the U.S., based on Indeed wage data.

The brokerage also emphasized that Europe’s savings ratio remains about 3 percentage points above its pre-COVID level, with excess savings estimated at roughly 10% of gross domestic product, creating scope for higher spending if households draw those balances down.

UBS pointed to improving household balance sheets in Europe, noting a 5% year-on-year rise in house prices and gains in household financial wealth, of which 26% is held in equities.

It also cited lower interest rates as reducing the incentive to save and said the end of the energy shock is easing pressure on household budgets.

UBS forecasts European gas prices to fall by about 25% from 2025 levels by the third quarter of 2026 and said declines in gas and oil prices historically support consumption, given their weight in consumer price indices.