The euro area surprisingly stagnated in the fourth quarter of last year, data released on Thursday showed.
Europe’s economic woes have shown no sign of abating. Quarterly GDP growth in the single currency area fell sharply from 0.4% to 0% in the final three months of 2024, Eurostat reported.
Economists polled by Bloomberg had predicted the eurozone would grow by 0.1%.
The eurozone’s poor performance was largely due to economic downturns in Germany and France, the bloc’s two largest economies, which contracted by 0.2% and 0.1%, respectively.
Italy, the third-largest economy, also stagnated for the second consecutive quarter. By contrast, Spain, the fourth-largest economy, grew by 0.8% for the third quarter in a row.
Eurostat data indicated that consumers are still “reeling from the inflation shock” triggered by Russia’s full-scale invasion of Ukraine in 2022, said Bert Colijn, an economist at ING Research.
Europe’s economic problems are compounded by low levels of investment, weakness in manufacturing, and general “economic uncertainty,” he added.
“For the moment, the economy seems to be in a slump and we don’t expect it to come out of it this winter.” Domestic demand will probably “drive some economic growth” later in the year, Colijin said.
Thursday’s data is likely to increase pressure on the European Central Bank to rapidly cut interest rates. The ECB is widely expected to reduce its key rate later today from 3% to 2.75% – its fifth rate cut this policy cycle.
Analysts and traders believe the ECB will reduce rates to around 2% by the end of this year.
The data comes amid growing fears about Europe’s global economic competitiveness. Yesterday, the Commission unveiled a range of policy recommendations to boost growth and investment, including cutting regulations, deepening the EU’s single market, and modifying competition policy to encourage companies to scale up.
According to the International Monetary Fund’s latest projections, the euro area is expected to grow by 1.2% this year – roughly half of the growth rate of the US.
Analysts also warn that Europe’s economy could be pushed into a recession this year if US President Donald Trump follows through on his promise to impose 10-20% tariffs on all US imports.
Energy News Beat