Economic growth in the eurozone slowed to a halt in the fourth quarter, dragged by contractions in two of its major economies, France and Germany, official data revealed Thursday.
Gross domestic product (GDP) was flat, with a zero increase in the final quarter of 2024 in the 20-nation eurozone, the EU statistics agency Eurostat said.
The stalling growth in the single-currency area disappointed predictions by analysts at Bloomberg and FactSet, who had forecast a 0.1% expansion after growth of 0.4% in the third quarter. Consumers remained cautious about spending after being stung by inflation, even though inflation has come down from its peak of 10.6% in October 2022.
Annual growth for 2024 stood at 0.7% in the 20-nation eurozone, after 0.4% the previous year – entrenching Europe's economic stagnation compared to faster-growing rivals the United States and China.
Germany is laboring under multiple headwinds, including the loss of cheap energy from Russia, choking bureaucracy and political paralysis in Berlin. Its economy contracted 0.2% in the fourth quarter.
The German economy, Europe's largest, also contracted 0.2% for all of 2024, the second straight year of declining output.
The outlook for this year isn't much better. On Wednesday, the government slashed its 2025 forecast to 0.3% from 1.1%.
Leading European economies Germany and France are both unsettled by political turmoil that has left businesses and consumers uncertain about what the future holds in terms of government spending, regulation and taxes. Germany's confusion could clear up after a national election on Feb. 23 following the collapse of Social Democratic Chancellor Olaf Scholz's governing coalition, which has been mired in months of bickering over what to do about the economy.
France may take longer to emerge from paralysis since Parliament is deeply divided and a new election can't be held until July at the earliest. Political forces are at odds over how to address the country's large budget deficit.
Business prospects have been unsettled by the election of Donald Trump in the U.S., whose advocacy of new and higher import tariffs could hurt Europe's export-oriented economy. The slowing uptake of electric vehicles and Germany's cancellation of purchase subsidies for EVs has hurt demand for parts suppliers.
Jack Allen-Reynolds, chief eurozone economist at Capital Economics, said the fourth-quarter stagnation "supports our view that the region's economic prospects are worse than most think."
After hiking borrowing costs in 2022 to tame runaway energy and food costs, the European Central Bank (ECB) has brought them steadily back down as inflation slows and the eurozone economy looks weak.
It was expected to cut its key interest rate later Thursday, a step that could help boost growth.
The ECB faces a juggling act since lower rates help growth by making credit more affordable but also can worsen inflation, which has risen in recent months and was at 2.4% in December as energy prices rose.
Allen-Reynolds predicted the lackluster growth figures could prompt the ECB to accelerate its campaign beyond the latest quarter-point reduction it is expected to announce later Thursday.
For the 27-nation EU as a whole, the data painted only a slightly better picture, with annual growth of 0.8% – 0.1 points less than forecast by the European Commission in November.
But there were stark disparities between eurozone countries, spelling a potential headache for the ECB as it weighs future rate cuts.
At one end of the eurozone spectrum, Spain saw its economy expand by 3.2% last year – while at the other, Germany endured a 0.2% contraction and a second year of recession.
Somewhere in between, France leveraged a boost from the Paris Olympic Games to notch annual growth of 1.1%, doing better than Italy at 0.5%.
But the French economy's fortunes faded at the end of the year – and it shrank by 0.1% in the fourth quarter as the summer Olympic boost gave way to months of political crisis.
