The euro zone economy reported zero growth in the fourth quarter, falling short of expectations for a slight expansion. Economists had anticipated a 0.1% increase during this period, but faltering growth took precedence over inflation concerns within the bloc. This economic stagnation has prompted economists to predict further interest rate cuts by the European Central Bank (ECB) throughout the year.
Germany's gross domestic product decreased by 0.2% in the fourth quarter, while France's economy also experienced a slight contraction. Italy's economy remained stagnant on a quarter-on-quarter basis. In contrast, Spain's GDP grew by 0.8% during the same period, reflecting a varied economic performance across the region.
Economists expect the ECB to announce another 25-basis-point reduction in interest rates during its meeting later on Thursday. The central bank had already implemented four interest rate cuts last year to stimulate economic activity and investment within the euro zone.
Despite these efforts, core inflation, which excludes volatile food and energy prices, remained unchanged at 2.7% for the fourth consecutive month. The central bank forecasts that the overall inflation rate in the bloc will be 2.1% this year.
The ECB initially projected a 0.2% growth for the economy in the fourth quarter of 2024, but the current lack of growth has shifted focus towards bolstering the economy through monetary policy adjustments. The central bank has projected a GDP growth of 0.3% in the first quarter of 2025 and anticipates a 1.1% growth by the end of that year.
"Survey-based indicators relevant for activity, such as the Purchasing Managers' Index (PMI) and business and consumer confidence indicators from the European Commission, remain subdued," – The central bank.