Brussels (Belgium) (AFP) – Eurozone growth slowed to a halt in the fourth quarter last year, dragged by contractions in major powers Germany and France, which were held back by economic headwinds and political instability. Official data released Thursday showed growth stalling in the single-currency area, disappointing predictions made by analysts at Bloomberg and FactSet who had forecast a 0.1-percent expansion. The year ended with a marked slowdown compared to the third quarter, which had exceeded analyst expectations with growth of 0.4 percent.
Annual growth for 2024 stood at 0.7 percent in the 20-nation eurozone, after 0.4 percent the previous year, entrenching Europe’s economic stagnation compared to faster-growing rivals the United States and China. Jack Allen-Reynolds, chief eurozone economist at Capital Economics, stated that the fourth-quarter stagnation “supports our view that the region’s economic prospects are worse than most think.” He predicted that the lackluster data could prompt the European Central Bank (ECB) to accelerate its rate-cutting campaign beyond the reduction it is expected to announce later Thursday.
After hiking borrowing costs in 2022 to tame runaway energy and food costs, the ECB has been steadily bringing them back down since the middle of last year, as inflation slows and the eurozone economy appears weak. For the 27-nation EU as a whole, the data painted a slightly better picture, with annual growth of 0.8 percent, which is 0.1 point less than the forecast made by the European Commission in November.
Europe has been hobbled by a spike in energy prices since Russia’s 2022 invasion of Ukraine, leading to painful cutbacks in various sectors from steel to chemicals to car manufacturing. Germany is additionally suffering from weak demand for the country’s exports, combined with a host of structural issues such as labor shortages. The European Commission unveiled a blueprint on Wednesday to revamp the bloc’s economic model, amid worries that red tape, low productivity, weak investments, and high energy prices are leaving it behind the United States and China.
The blueprint aims to turn recommendations made last year by former Italian leaders Enrico Letta and Mario Draghi into a tangible plan of action. “The big question remains how successful it can be at implementation,” commented ING chief economist Bert Colijn. However, even if successful, he argued that “it will only boost the economic outlook for the medium term.”
Thursday’s data confirmed 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 percent last year, while at the other end, Germany endured a 0.2-percent contraction and a second year of recession. Somewhere in between, France leveraged a boost from the Paris Olympic Games to achieve annual growth of 1.1 percent, performing better than Italy, which recorded growth of 0.5 percent.
However, the French economy’s fortunes faded at the end of the year, shrinking by 0.1 percent in the fourth quarter as the summer Olympic boost gave way to months of political crisis. Italy’s economy was flat in the fourth quarter. With France still struggling to push a 2025 budget through its hung parliament and Germany at a standstill pending the outcome of elections in which the far right is gaining momentum, the prospects for the eurozone’s two biggest economies remain grim.
“For the moment, the economy seems to be in a slump, and we don’t expect it to come out of it this winter,” warned ING’s Colijn. “The first indications for the first quarter are that the economy will hover around stagnation some more.”
© 2024 AFP
