The euro zone economy stagnated in the fourth quarter of 2024, registering zero growth, according to preliminary data released by Eurostat on Thursday. The figure fell short of economists’ expectations of a 0.1% expansion and followed a stronger-than-anticipated 0.4% growth in the third quarter. The disappointing data underscores the ongoing economic challenges faced by the 20-nation bloc amid subdued consumer confidence and geopolitical uncertainties.
Germany and France, the euro zone’s two largest economies, reported weaker-than-expected results. Germany’s GDP contracted by 0.2% in the fourth quarter, marking its second consecutive year of economic decline, while France’s economy also recorded a slight contraction. Italy’s GDP remained unchanged quarter-on-quarter. In contrast, Spain saw a robust 0.8% expansion, and Portugal’s economy grew by 1.5%, driven by increased private consumption, according to the country’s national statistics office.
The weak economic performance is likely to weigh on the European Central Bank (ECB), which announced a 25-basis-point interest rate cut on Thursday, bringing the key deposit facility rate down to 2.75%. This marks the fifth reduction since June 2024 as policymakers attempt to stimulate economic activity amid stagnation. ECB President Christine Lagarde stated that the “disinflation process is well on track” and reaffirmed expectations that inflation would reach the central bank’s 2% target later this year.
The euro fell 0.15% against the U.S. dollar following the GDP report, reflecting investor concerns over the region’s economic outlook. The ECB’s decision to ease monetary policy comes in contrast to the U.S. Federal Reserve, which opted to maintain interest rates, highlighting the divergence between Europe’s sluggish economy and stronger growth in the United States. Economic sentiment in the euro zone remains fragile, with consumer and business confidence indicators staying subdued.
Inflation remains a concern, with the euro zone’s consumer price index rising to 2.4% in December, while core inflation, which excludes volatile food and energy prices, held steady at 2.7% for the fourth consecutive month. The ECB had previously projected 0.2% growth for the final quarter of 2024, citing factors such as fading post-summer economic boosts, persistent uncertainty, and geopolitical tensions. Germany, traditionally the bloc’s economic engine, continues to face structural challenges, including energy price volatility, bureaucracy, and political uncertainty.
The government recently slashed its 2025 growth forecast to 0.3% from an earlier estimate of 1.1%, signaling continued economic difficulties. Political uncertainty in France and Germany further complicates the outlook, with businesses and consumers wary of future fiscal and regulatory policies. The ECB is expected to continue its accommodative stance, with additional rate cuts likely in 2025 as the central bank prioritizes economic growth over lingering inflation concerns. – By MENA Newswire News Desk.