Euro Zone Economy Stalls in Q4, Raising Concerns for Future Growth
The euro zone economy came to a standstill in the fourth quarter, with zero growth reported by the European Union’s statistics agency Eurostat. This disappointing figure falls short of economists’ expectations of 0.1% growth, following a 0.4% expansion in the previous quarter.
Germany and France Disappoint, While Spain and Portugal Shine
The lackluster performance is attributed to poor growth prints from the euro zone’s two largest economies, Germany and France. Germany’s GDP fell 0.2% in the fourth quarter, while France’s economy also contracted slightly. In contrast, Spain’s GDP grew by 0.8%, and Portugal’s economic growth accelerated to 1.5%, driven by an increase in private consumption.
ECB to Consider Interest Rate Cuts Amid Stagnant Growth
The European Central Bank (ECB) is expected to make another 25-basis-point interest rate cut later today, bringing the key rate down to 2.75%. Economists predict further interest rate cuts this year, as concerns over faltering growth outweigh worries about stubborn inflation.
Inflationary Pressures Remain a Concern
Despite stagnant growth, inflationary pressures persist in the region. The euro zone consumer price index rose to 2.4% in December, while core inflation remained unchanged at 2.7% for the fourth consecutive month. The ECB forecasts an inflation rate of 2.1% this year.
Central Bank Policymakers Face a Delicate Balancing Act
As the ECB considers its next move, policymakers must navigate the challenges of stagnant growth and rising inflation. With survey-based indicators remaining subdued, the central bank’s forecast of 1.1% growth in 2025 appears optimistic. The ECB’s ability to stimulate economic activity and investment will be crucial in determining the region’s future growth prospects.
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