Volkswacht Bodensee - France, Germany stall eurozone growth in fourth quarter

Official data Thursday showed growth stalling in the single-currency area -- disappointing predictions by analysts at Bloomberg and FactSet who forecast a 0.1-percent expansion.

The year ended in 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, said the fourth-quarter stagnation "supports our view that the region's economic prospects are worse than most think."

Allen-Reynolds predicted the lacklustre data could prompt the European Central Bank 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 bringing them steadily back down since the middle of last year, as inflation slows and the eurozone economy looks weak.

For the 27-nation EU as a whole, the data painted an only slightly better picture with annual growth of 0.8 percent -- 0.1 point less than forecast by the European Commission in November.

Europe has been hobbled by the spike in energy prices since Russia's 2022 invasion of Ukraine -- leading to painful cutbacks in a range of 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 labour shortages.

The European Commission unveiled a blueprint Wednesday to revamp the bloc's economic model, amid worries that red tape, low productivity and weak investments -- as well as 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. But even if successful, he argued, "it will only boost the economic outlook for the medium term."

- 'In a slump' -

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 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 notch annual growth of 1.1 percent -- doing better than Italy on 0.5 percent.

But the French economy's fortunes faded at the end of the year -- and it shrank 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 riding high, the prospects for the eurozone's two biggest economies remain glum.

"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."

P.Vogel--VB