The eurozone economy unexpectedly stagnated at the end of 2024, as political turmoil in Germany and France dampened business and consumer confidence, according to data released by Eurostat.
In the fourth quarter, the region’s gross domestic product (GDP) remained unchanged from the previous three months, defying analysts’ expectations of a modest 0.1% growth. Economic output contracted by 0.2% in Germany and 0.1% in France, while Italy and Austria recorded negligible changes.
Political Uncertainty Weighs on Growth
The stagnation highlights the eurozone’s struggle to find sources of economic momentum, with Germany’s prolonged industrial crisis dragging down overall production. Business sentiment has also been affected by the growing prospect of punitive trade measures from US President Donald Trump, which could further disrupt supply chains and investment decisions.
In Germany, Chancellor Olaf Scholz’s coalition government has faced mounting instability, with disagreements over fiscal policy and green energy reforms weakening investor confidence. Meanwhile, in France, President Emmanuel Macron’s administration has been dealing with widespread social unrest and parliamentary deadlock, further unsettling the business environment.
Trade Tensions and Monetary Policy Response
Concerns over Trump’s trade policy have begun to filter into corporate strategy. A Bloomberg analysis suggests that discussions about tariffs have dominated earnings reports this month, reflecting heightened anxiety among European exporters. On his second day in office, Trump extended tariff threats to China and the European Union, following his initial focus on Canada and Mexico.
In response to the sluggish economic outlook, the European Central Bank (ECB) is expected to reduce its key deposit rate by 0.25 percentage points to 2.75% later this week. This move is aimed at easing borrowing costs and stimulating growth, though questions remain over its effectiveness given the scale of the economic challenges.
Germany’s Prolonged Economic Malaise
Germany is experiencing its longest period of economic stagnation since World War II. GDP growth has been largely absent since 2019, with no clear recovery strategy in sight. The country’s economy contracted for a second consecutive year in 2024, underlining the severity of the downturn. High energy costs, supply chain disruptions, and weakening global demand have all contributed to the crisis.
As Europe’s largest economy struggles, the broader eurozone remains vulnerable to further slowdowns. With persistent political instability and the looming threat of trade disputes, the region faces an uncertain economic future.
