August 25, 2025, Filed Under: Working PaperThe Impact of Geopolitical Risk on Consumer Expectations and Spending EMPCT Working Paper Series No. 2025-0828 pages | PDF Download | PDF in Browser Gorodnichenko, Yuriy; Georgarakos, Dimitris; Kenny, Geoff; and Coibion, Olivier, “The Impact of Geopolitical Risk on Consumer Expectations and Spending”, August 2025 Yuriy Gorodnichenko®UC Berkeley and NBER Dimitris Georgarakos®European Central Bank and CEPR Geoff Kenny®European Central Bank Olivier Coibion®UT Austin and NBER Abstract: Using novel scenario-based survey questions that randomize the expected duration ofthe Russian invasion of Ukraine and Middle East conflict, we examine the causal impact ofgeopolitical risk on consumers’ beliefs about aggregate economic conditions and their ownfinancial outlook. Expecting a longer conflict leads European households to anticipate a worseningof the aggregate economy, with higher inflation, lower economic growth, and lower stock prices.They also perceive negative fiscal implications, anticipating higher government debt and highertaxes. Ultimately, households view the geopolitical conflict as making them worse off financiallyand it leads them to reduce their consumption.
