Euro Area: Economy stagnates in Q4
GDP reading disappoints markets: According to a preliminary estimate, GDP flatlined on a seasonally adjusted quarter-on-quarter basis in the fourth quarter, below market expectations and the 0.4% expansion seen in the third quarter.
On an annual basis, economic growth was stable at Q3’s 0.9% in Q4. Accordingly, GDP grew 0.7% in 2024 as a whole, improving from 2023’s 0.5% but still far below the 2014–2023 mean of 1.6%.
Economies of France and Germany shrink: Looking at the Euro area’s largest economies, Germany’s GDP shrank 0.2% after growing 0.1% in Q3 due to a decline in exports outweighing healthy private and public spending. Moreover, the French economy contracted 0.1% (Q3:+0.4% qoq s.a.), partly reflecting a high base effect from the boost from the Olympics in Q3. Meanwhile, the Italian economy flatlined for the second successive quarter as a positive contribution from net exports offset a negative contribution from domestic demand. Lastly, Spain continued to beat market expectations: GDP growth matched Q3’s 0.8% as a sharp rebound in fixed investment compensated for weaker outturns elsewhere.
Economy to return to growth in Q1: Our panelists expect the Euro area to expand sequentially in Q1, aided by the ongoing monetary policy easing cycle. The economy should then retain a steady pace of expansion throughout 2025 as the effects of ECB rate cuts fully filter through the economy. That said, growth is expected to remain below trend overall in 2025. Higher-than-expected U.S. tariffs are a downside risk, though our panelists still see exports growth accelerating. Sustained weakness in Germany’s industrial sector poses an additional downside risk.
Panelist insight: ING’s Bert Colijn commented:
“For the moment, the economy seems to be in a slump and we don’t expect it to come out of it this winter. 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 economic growth again.”