The eurozone economy failed to grow in the fourth quarter of 2024, marking a sharp slowdown from the previous quarter and missing expectations for modest expansion. Flash figures released by Eurostat on Thursday showed that gross domestic product (GDP) was unchanged from the previous quarter, falling short of the anticipated 0.1% growth.
The stagnation was largely attributed to contractions in the bloc's two largest economies, Germany and France. Germany's GDP shrank by 0.2%, while France saw a 0.1% decline. Together, these two nations account for nearly half of the eurozone's total economic output.
The underwhelming performance contrasts sharply with stronger growth in the eurozone's southern economies. Spain, which has been ruled by a fragile minority government, exceeded forecasts with 0.8% quarterly growth, while Portugal posted a 1.5% expansion, driven by accelerating private consumption.
The eurozone's annual GDP growth rate remained at 0.9%, with economists warning that the region's economic prospects are weaker than previously thought. "The stagnation in euro-zone GDP in Q4 supports our view that the region's economic prospects are worse than most think," Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said in a note to clients.
The lackluster figures put renewed pressure on the European Central Bank (ECB), which is widely expected to cut interest rates again at its upcoming meeting. The central bank, which implemented four rate cuts last year in an effort to stimulate investment and consumer spending, is expected to lower its key deposit rate by another 25 basis points, bringing it to 2.75%.
The ECB had forecast 0.2% growth for the fourth quarter, but policymakers are now bracing for a prolonged period of economic weakness. Inflation remains a concern, with the eurozone consumer price index rising to 2.4% in December, while core inflation-excluding volatile food and energy prices-stood at 2.7% for the fourth consecutive month.
The economic slowdown has also been exacerbated by political instability in Germany and France. Germany is heading for early elections in February after its three-party coalition government collapsed, while France has struggled with a lack of stable governance since mid-2024 elections.
Meanwhile, concerns over trade tensions with the United States and China continue to weigh on business confidence. European Commission President Ursula von der Leyen on Wednesday unveiled a policy package aimed at cutting regulatory burdens and boosting growth across the EU, though analysts remain skeptical about its immediate impact.
The coming months will be crucial for the eurozone's economic trajectory. The ECB has projected 1.1% GDP growth for 2025, but with business and consumer confidence indicators remaining subdued, many economists believe the outlook is weaker than the official forecasts suggest.
