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The Eurozone economic system unexpectedly stagnated within the fourth quarter, ratcheting up the stress on the European Central Financial institution to chop rates of interest extra aggressively this 12 months.
The zero progress within the quarter missed even the modest 0.1 per cent enlargement predicted by economists polled by Reuters and 0.4 per cent progress within the third quarter. For 2024, the Eurozone economy expanded 0.7 per cent, in response to knowledge launched by Eurostat on Thursday.
The figures come simply hours earlier than the ECB minimize its benchmark rate of interest by a quarter-point to 2.75 per cent, the bottom degree since early 2023.
“The area’s financial prospects are worse than most suppose,” mentioned Jack Allen-Reynolds at Capital Economics. “We anticipate this to immediate the ECB to chop rates of interest by extra this 12 months than is discounted out there.”
The stagnation underlines the problem going through the area as Germany, the Eurozone’s largest economic system, struggles with a extreme manufacturing downturn and political turbulence.
German GDP contracted 0.2 per cent within the remaining three months of 2024 in contrast with the earlier quarter, whereas France’s economy unexpectedly shrank by 0.1 per cent. Output was flat in Italy.
Customers in massive components of Europe have remained cautious even after inflation subsided following the surge in costs that pressured central banks around the globe to lift charges.
One exception is Spain, the place GDP rose 0.8 per cent within the fourth quarter in contrast with the earlier three-month interval, making it an outlier among the many largest economies within the single foreign money area.
Merchants are betting that the ECB will make one other two or three quarter-point cuts this 12 months, in response to ranges implied by swaps markets.
The euro, which has weakened in latest months because the financial coverage paths of the US and Eurozone diverge, was little modified at $1.042 in late afternoon buying and selling.
Separate figures from Eurostat pointed to a slight weakening within the labour market, because the Euro space unemployment charge rose to six.3 per cent in December, up from 6.2 per cent in November.
“Weak point is throughout us whereas different main economies present progress,” mentioned Bert Colijn, an economist at ING.
The deteriorating image within the Eurozone contrasts with the US, which the IMF predicts will develop 2.7 per cent this 12 months, near its tempo in 2024. The US Federal Reserve left rates of interest unchanged on Wednesday, as Jay Powell, its chair, described the economic system as “sturdy general” whereas labour market situations stay “strong”.
US President Donald Trump sharply criticised the Fed’s resolution to carry charges.
Economists warned that the opportunity of US tariffs being imposed on European merchandise may add to the foreign money bloc’s headwinds. The menace comes amid a interval of heightened political uncertainty as Germany prepares for elections on February 23.
A ten per cent US tariff on all imports from the Eurozone, coupled with greater uncertainty about future US-EU industrial relations, may trim Eurozone progress by 0.3-0.5 proportion factors inside a 12 months, mentioned Holger Schmieding, chief economist at Berenberg.
For the ECB, he mentioned, “this could be an argument to chop charges beneath 2.25 per cent, which we at present challenge because the trough for the deposit charge”.
Extra reporting by Ian Smith
