Euro Zone Economy Ends 2024 on a Weak Note
The euro zone economy, which has been teetering on the edge of recession for over a year, finished 2024 with a whimper, according to several key indicators released on Wednesday. These dismal figures suggest that a long-awaited recovery remains elusive.
Sentiment Indicator Falls Short
The European Commission’s key sentiment indicator took a surprise tumble in December, falling to 93.7 from 95.6 in November. This decline was far worse than expected, casting a shadow over the euro zone’s growth prospects. The index of industrial climate plummeted, consumer sentiment dropped, and price expectations rose, painting a gloomy picture.
German Industrial Orders Plummet
Separate data revealed that industrial orders in Germany, the euro zone’s largest economy, declined a staggering 5.4% from the previous month. This sharp drop was a far cry from expectations of no change, underscoring the sector’s ongoing struggles. Germany’s industrial sector has been mired in recession for over a year, weighed down by high energy costs, waning demand from Asia, and cheaper competition from other markets.
Retail Sales Disappoint
Retail sales in Germany also fell short, declining by 0.6% in real terms from the previous month. This was a surprise, given forecasts of 0.5% growth. The disappointing figures suggest that the rebound in private consumption seen in the third quarter may not continue into the fourth quarter.
Private Consumption Hopes Dashed
Economists had been counting on private consumption to drive the recovery, given households’ substantial real income growth amid dwindling inflation. However, a study from the European Central Bank suggests that households will continue to save a large portion of their income to rebuild wealth lost to high inflation. This trend could be exacerbated by any further softness in the labour market, which has started to suffer from weak growth, shrinking corporate margins, and lacklustre demand for corporate goods and services.
Growth Prospects Bleak
The euro zone’s growth prospects look increasingly bleak, with the fresh threat of tariffs on its exports from the incoming Trump administration adding to the uncertainty. As Leo Barincou at Oxford Economics noted, “Today’s grim Economic Sentiment Indicator poses a clear downside risk to our forecast of moderate GDP growth in the first quarter of the year.” With no bright spot in sight, the euro zone economy faces a challenging road ahead.
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