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The euro area of the economy unexpectedly stagnated in the fourth quarter and grew pressure on the European Central Bank to reduce interest rates more aggressively this year.
Zero growth in the quarter also missed a modest expansion of 0.1 % predicted economists who asked Reuters and 0.4 % growth in the third quarter.
For 2024, Euro area economy According to data published by Eurostat, it expanded by 0.7 %on Thursday.
Numbers Come only a few hours before the ECB is expected to reduce its benchmark interest rate by a quarter-point to 2.75 %, the lowest level since the beginning of 2023.
“The economic prospects of the region are worse than most think,” said Allen-Reynolds at Capital Economics. “We expect the ECB to challenge interest rates this year than the market discounted.”
Stagnation emphasizes the challenge that faces the region when Germany, the largest economy of euro area, is fighting a severe production decline and political turbulence.
German GDP closed by 0.2 % in the last three months of 2024 compared to the previous quarter, while France Unexpectedly decreased by 0.1 %. The output was flat in Italy.
Consumers in large parts of Europe remained cautious even after inflation has retreated for the increase in prices that forced central banks around the world to raise rates.
The exception is Spain, where GDP increased by 0.8 % in the fourth quarter compared to the previous three -month period, making it a remote person among the largest economies in the area of a single currency.
According to the swap market based on data, traders have increased the bet that ECB will reduce the rates four times this year.
The euro, which has weakened in recent months, when monetary policies in the US and the euro area differed, did not change to $ 1.041.
Independent data from Eurostat pointed out a slight weakening of the labor market, as the unemployment rate in the euro area increased to 6.3 % in December, from 6.2 % in November.
“Weakness is all around us, while other main economies show growth,” said Bert Colijn, economist Ing.
The deteriorating image in the euro area contrasts with the US, which predicts that this year will grow by 2.7 %, almost in 2024. The economy as “overall strong”, while labor market conditions remain “solid”.
US President Donald Trump sharply criticized Fed's decision to hold rates.
Economists warned that the possibility of US tariffs deposited on European products could add to the monetary block heads. The threat comes in the middle of the period of increased political uncertainty, as Germany prepares for elections on February 23.
10 % American tariff on all euro area imports, associated with higher uncertainty about future business relations in US-EU, could reduce the euro area growth by 0.3-0.5 percentage points within one year, Holger Schmieding, Chief Economist in Berenberg said .
He said for the ECB: “This would be an argument for lowering rates below 2.25 %, which is currently projected as a trough for a deposit rate”.
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