The euro zone economy unexpectedly stagnated in the fourth quarter, ratcheting up the pressure on the European Central Bank (ECB) to cut interest rates more aggressively.
The lack of growth in the quarter compared with the 0.1 per cent expansion forecast by economists polled by Reuters and 0.4 per cent growth in the third quarter.
For 2024, the euro zone economy expanded 0.7 per cent, according to data released by Eurostat on Thursday.
The figures come just hours before the ECB is expected to cut its benchmark interest rate by a quarter-point to 2.75 per cent, the lowest level since early 2023.
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“The region’s economic prospects are worse than most think,” said Jack Allen-Reynolds at Capital Economics.
“We expect this to prompt the ECB to cut interest rates by more this year than is discounted in the market.”
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The stagnation also underlines the challenge facing the region as Germany, the Eurozone’s biggest economy, struggles with a severe manufacturing downturn.
German GDP contracted by 0.2 per cent in the final three months of 2024 while France’s economy unexpectedly shrank by 0.1 per cent. Output was flat in Italy.
Following the data, traders increased bets that the ECB will cut rates four times this year, according to the swaps market.
The euro, which has weakened in recent months as the path of US and European interest rates diverge, was little changed at $1.041.
The deteriorating picture in the euro zone contrasts with the US, which the IMF predicts will grow by 2.7 per cent this year, close to its pace in 2024. The US Federal Reserve left interest rates unchanged on Wednesday. – Copyright The Financial Times Limited 2025
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