The Eurozone economy has come to a standstill in the fourth quarter of 2024, as Germany and France, the two largest economies within the bloc, have reported unexpected contractions. This situation raises concerns about the persistent economic weakness in the region, according to analysts.
As per preliminary statistics released by Eurostat, the Eurozone’s gross domestic product (GDP) showed no change from the previous quarter, marking a significant decline from the 0.4 percent growth recorded in the third quarter. This performance also fell short of the 0.1 percent growth forecasted by analysts, indicating the weakest results since the fourth quarter of 2023.
EU GDP registers slight increase despite stagnation in Eurozone
For the broader European Union (EU), GDP registered a slight increase of 0.1 percent quarter-on-quarter. On an annual basis, the seasonally adjusted GDP rose by 0.9 percent in the Euro area and 1.1 percent in the EU, showing a slight improvement from the previous quarter’s figures of 0.9 percent and 1.0 percent, respectively.
Read more: Eurozone inflation rises to 2.4 percent for third consecutive month in December
Germany and France’s contractions drive Eurozone economic decline
The primary contributors to the decline in growth were Germany and France, both of which unexpectedly contracted during this period. Germany’s economy shrank by 0.2 percent, worse than the predicted 0.1 percent decline, while France’s GDP fell by 0.1 percent, missing expectations for stagnation. Additionally, Italy’s economy remained flat for a second consecutive quarter, defying projections of a modest 0.1 percent increase.
Peripheral economies outperform while major players struggle
Some peripheral economies outperformed expectations, with Portugal leading the growth rankings at 1.5 percent, followed by Lithuania at 0.9 percent and Spain at 0.8 percent. The weakest performances were recorded in Ireland at -1.3 percent, Germany at -0.2 percent, and France at -0.1 percent.
Eurozone economy prompts expectations of ECB rate cuts
The disappointing GDP figures amplify expectations that the European Central Bank (ECB) will announce interest rate cuts at its policy meeting today. Markets are fully anticipating a 25-basis-point reduction to 2.75 percent, with four rate cuts expected by the end of 2025.
ECB faces pressure to stimulate struggling Eurozone economy
Frankfurt is under increasing pressure to maintain its rate-cutting cycle to stimulate an economy that is visibly struggling, while inflation approaches the ECB’s target of 2 percent. ECB President Christine Lagarde is expected to emphasize that monetary policy alone is insufficient to revive growth and that fiscal measures, along with structural reforms, are necessary to enhance competitiveness.
Diverging monetary policies: ECB and Fed in contrast
The anticipated rate cuts from the ECB highlight a growing divergence in monetary policy compared to the U.S. Federal Reserve, which maintained rates steady between 4.25 percent and 4.50 percent during its recent meeting. Fed Chair Jerome Powell reiterated that there is “no rush” to implement further rate cuts, underscoring the resilience of the U.S. economy. Meanwhile, the euro remained steady at $1.04, as bond yields declined.
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