The euro zone unexpectedly stagnated at the end of last year as government collapses in its top two economies bruised confidence among businesses and consumers.
Fourth-quarter gross domestic product was unchanged from the previous three months, Eurostat said, defying analyst estimates that the 20-nation bloc eked out growth of 0.1%. Output fell 0.2% in Germany and 0.1% in France.
Over the whole of 2024, euro-area GDP rose 0.7%, Eurostat said.
The region is struggling to find growth drivers as a manufacturing malaise in Germany weighs on output and sentiment is soured by the threat of punitive trade measures from US President Donald Trump. Italy and Austria both saw GDP flatline.
Some help is on the way from the European Central Bank, which is widely expected to cut its deposit rate by another quarter-point later Thursday, to 2.75%. But policymakers in Frankfurt still have an eye on inflation. Separate data showed Spanish consumer prices rose 2.9% this month — more than analysts had expected.
Investors added to bets on ECB rate cuts, pricing 94 basis points of easing through year-end, compared with 89 basis points on Wednesday. That implies three quarter-point reductions and an almost 80% chance of a fourth.
Bonds extended gains, sending Germany’s 10-year yield six basis points lower to 2.53%. The euro fell 0.2% to about $1.04 — its lowest level of the day.
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The uncertainty over Trump’s plans is already seeping through to companies, with talk of tariffs dominating earnings calls this month, according to a Bloomberg analysis.
For Germany, the disappointing data come less than a month before a snap election that’ll probably see Chancellor Olaf Scholz ousted by Friedrich Merz, who leads the conservative CDU/CSU bloc and is promising lower taxes and fewer regulations.
While some hope that the Feb. 23 ballot will bring more growth-oriented policies capable of helping drag Europe’s largest economy and the 20-nation euro zone as a whole out of their respective ruts, many analysts are skeptical.
Highlighting the problems facing companies, tire and component maker Continental AG said this week that its automotive unit will struggle to increase sales in 2025 due to a “challenging market environment” and is cutting costs to try to buoy profitability.
Germany saw gross domestic product shrink for a second consecutive year in 2024 and the government on Wednesday revised down its 2025 growth outlook to just 0.3% from 1.1%.
In France, where analysts had only expected the economy to stagnate, the tailwinds from last summer’s Paris Olympics have long faded. Activity was curtailed by slower consumer-spending growth and a stagnation in business investment.
The overarching issue is a budget crisis that’s forced the government in Paris to rely on stopgap legislation to avoid a shutdown. The economic fragility is complicating matters, with poor tax revenue and soft growth pushing last year’s fiscal shortfall to about 6% of output.
Talks on a full 2025 budget are set to culminate next week, when new Prime Minister Francois Bayrou’s tax-and-spend plans will face a vote that could force him to resign.
French companies are increasingly airing their frustrations, with Bernard Arnault, the billionaire chief executive of LVMH Moët Hennessy Louis Vuitton SE, saying this week that the extra corporate taxes in the government’s budget risk pushing investment abroad.
“There is a real deterioration in France’s economic situation,” Patrick Martin, the chief of Medef business group, told the AJEF press association Wednesday. “There’s disbelief in our ranks about what is happening in politics, and sometimes anger.”
There was one brights spot among Europe’s economies: Spain reported a 0.8% jump in GDP on Wednesday and remains the region’s standout performer. Portugal and Lithuania also recorded strong growth.
For now, Europe “seems to be in a slump and we don’t expect it to come out of it this winter,” ING economist Bert Colijn said in a report to clients. “The first indications for the first quarter are that the economy will hover around stagnation some more. Over the course of this year, we do expect domestic demand to drive some growth again.”
--With assistance from Rodrigo Orihuela, Mark Evans, Giovanni Salzano, Joel Rinneby, Barbara Sladkowska, Kristian Siedenburg, Christoph Rauwald, Alessandra Migliaccio, Craig Stirling, Angelina Rascouet, Alice Gledhill and Aline Oyamada.
source: finance.yahoo.com
