🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

Euro zone economy lags global growth as Germany struggles

Published 01/30/2024, 05:03 AM
Updated 01/30/2024, 09:26 AM
© Reuters. FILE PHOTO: People walk next to a Doner kebab and Currywurst booth at Kurfuerstendamm shopping street during Christmas season in Berlin, Germany, December 18, 2023.  REUTERS/Lisi Niesner/File Photo

By Francesco Canepa and Jan Strupczewski

FRANKFURT/BRUSSELS (Reuters) - The euro zone's economy stagnated last year, underperforming the rest of the world as former powerhouse Germany struggled with an industrial malaise that has no end in sight, data showed on Tuesday.

The 20 countries that share the euro barely avoided a recession in the final quarter of last year even as the global economy expanded and the euor zone's biggest trading partner, the United States, chalked up impressively brisk growth.

The euro area's underperformance was mostly due to weakness in Germany, which has seen its business model relying on cheap energy from Russia and intense two-way trade with China upended by geopolitical events.

Europe's largest economy shrank by 0.3% in the last three months of 2023 while the bloc as a whole saw steady output, helped by expansions in Spain and Italy, Eurostat's flash or preliminary figure showed.

That marked the sixth consecutive quarter of no or little growth.

Economists expect more of the same in the coming months before a timid recovery in the summer, which should lead to another year of meagre growth for the euro area.

"Stronger household consumption as the effects of the shock to energy prices subside and inflation falls, supporting real income growth, is expected to drive the recovery," the International Monetary Fund said on Tuesday in its World Economic Outlook.

Still, it downgraded its euro area economic growth forecast to 0.9% this year and 1.7% in 2025.

Private-sector economists were also downbeat, with S&P Global Market Intelligence warning of a "challenging" year "amid faltering demand and increasing geopolitical tensions".

LAGGING THE U.S.

This was in stark contrast with the United States.

While both economies have been subject to a steady diet of interest rate hikes by their central banks in response to a surge in inflation, the U.S. economy shrugged off dire predictions of recession and grew by 2.5% last year.

Eurostat did not provide an annual figure for the euro zone overall with the report, which is subject to change, particularly due to possible revisions in Irish output, but the IMF put it at just 0.5%.

The new year kicked off with a wave of strikes and protests over inflation, including several by farmers in Germany and France who oppose plans to gradually reduce subsidies from the European Union.

With inflation now falling, workers are likely to regain some purchasing power this year. Meanwhile, anticipated rate cuts by the European Central Bank should also ease pressure on the battered construction sector.

© Reuters. FILE PHOTO: People walk next to a Doner kebab and Currywurst booth at Kurfuerstendamm shopping street during Christmas season in Berlin, Germany, December 18, 2023.  REUTERS/Lisi Niesner/File Photo

But this may prove too little, too late, according to Christoph Weil, an economist at Commerzbank (ETR:CBKG).

"A significant upturn is also unlikely for the rest of the year," he said. "In view of persistently high inflation, the ECB is unlikely to lower its key rates before the summer, and this is unlikely to have a positive impact on the economy until 2025."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.