Attacks leave Euro consumers wary

Places like London's Oxford Street will be battlegrounds as economies try to recover

By CNN's Charles Hodson

LONDON, England (CNN) -- Stock up on basics and leave the luxuries alone: That's the new watchword of many European consumers left shocked, saddened, edgy and uncertain after last week's attacks.

"I don't really feel like going and having a splurge -- just makes you think about the way the world is, doesn't it?" said one shopper.

"It's not the kind of thing where you want to go and have fun and enjoy yourself shopping. It's much more a necessities and just getting on with life kind of thing," said another.

Consumers' depressed psychological state is bound to affect the economy.

"The psyche dictates the economy, it always has done," says psychotherapist Katalin St. Clair. "This is bigger than a blip. It will be rather longer in its effect and rather darker. For a number of reasons consumers won't be too flamboyant -- they are going to feel far too guilty."

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Europe's second largest retailer, Tesco, has had booming profits and sales despite an economic slowdown, and even said this week it's hiring 20,000 new employees.

Executives are defensive about the impact of the terrorist attacks.

"I think it's too early to say. I think we need to see how it goes forward from here. It's far too early to call a downturn at this stage," says David Reid, deputy chairman of Tesco.

All the same, retailers more generally accept there will be an impact on sales -- but a short-lived one.

"The experience of previous disasters like the death of Princess Diana or major world events like the Gulf War has been that people don't shop for a few days, and we'd expect for the first 10 days or two weeks that shopping would be down quite a lot, and that's the experience of our members," says Bill Moyes, director-general of the British Retail Consortium.

There's a lot at stake: until last week, the buoyant consumer was Europe's bastion against recession.

So places like London's Oxford Street -- a mile of department stores, clothes shops and luxury good outlets -- will be the battleground as economies struggle to recover their strength.

Only if places like this see a turnaround in sales will there be a general economic turnaround.

But economists say consumer spending was slowing and sentiment was sagging even before the attacks -- especially in the eurozone -- and will now stay that way.

"As a first guess, I would say that the recovery, which we were just beginning to see signs of in some of the data before these events, has been put back a couple of quarters," says Nigel Anderson of the Royal Bank of Scotland.

The key issues now: How soon will U.S. retaliation come? Will it lift or intensify the perceived threat of an extended war? And what will be the impact on individual Europeans' jobs?

Until those questions are answered, their wallets will most likely stay in their pockets.