UBS has shifted its consumer exposure by reducing the weight of the American consumer and increasing the weight of the European consumer, citing divergent macroeconomic trends, income dynamics, and balance sheet conditions on both sides of the Atlantic, according to a recent research note. UBS said the main risk to the American consumer is a slowdown in consumption growth, especially in the lower income segment.

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

UBS attributed this slowdown to several factors already evident in the data. The company noted that leading indicators point to pressure on real wages, with the layoff rate consistent with nominal wage growth of about 2.5-3%, while UBS expects quarterly annual inflation in basic personal consumption expenditures to rise to 4.1% in the first quarter.

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

UBS added that U.S. labor force growth slowed to zero from 1.1% previously, limiting the economy's ability to support consumption growth.

The company said employment indicators such as surveys of purchasing managers, Conference Board indicators and UBS' own leading indicators point to a weakening of employment momentum, while consumer confidence indicators remain subdued.

The broker noted that this pressure is more acutely felt by low-income households, who, according to him, have spent most of their excess savings, own relatively few financial assets and are more exposed to goods affected by tariffs.

In contrast, UBS said that the European consumer is facing a different situation, with what it described as growth risks compared to consensus expectations. While Bloomberg consensus forecasts point to consumption growth in Europe of 1.1% in 2026, UBS forecasts 0.9%, but argues that the balance of risks is shifted upward.

UBS said that real wage growth in Europe is projected to be around 1.2% in 2026 and is now marginally higher than in the United States, according to Indeed wage data.

The broker also stressed that the savings ratio in Europe remains about 3 percentage points above its pre-coronavirus level, and excess savings are estimated at about 10% of gross domestic product, creating opportunities for increased spending if households start using these funds.

UBS pointed to an improvement in household balance sheets in Europe, noting a 5% year-on-year increase in house prices and an increase in household financial wealth, of which 26% is held in stocks.

He also noted that lower interest rates reduce the incentive to save, and said that the end of the energy shock eases pressure on household budgets.

UBS predicts that European gas prices will fall by about 25% from 2025 levels by the third quarter of 2026, and stated that lower gas and oil prices have historically supported consumption, given their weight in consumer price indices.

Currency dynamics also play a role in UBS' positioning. The bank said the stronger euro, which it predicts will reach $1.19 in the first quarter of 2026, has historically coincided with outperformance in consumer sectors such as retail and airlines, where costs are often denominated in dollars.

UBS added that European retail remains relatively cheap compared to historical estimates, and that profit momentum has improved.

Collectively, UBS said the contrast in the underlying data supports its preference for European consumer exposure over the United States, where softer growth, weakening labor market trends and declining savings are increasing short-term risks, especially for low-income households.