Staff Reporter
Europe’s economy ended 2024 with no growth, according to Eurostat, the EU’s statistics agency. The gross domestic product (GDP) for the 20-nation eurozone remained flat in the final quarter, a significant drop from the 0.4% growth seen in the third quarter.
This slowdown comes as businesses express concern over potential trade disruptions linked to the new U.S. administration under President Donald Trump. Meanwhile, consumers continue to be cautious with their spending, still feeling the effects of inflation, even as it has decreased from a peak of 10.6% in October 2022.
Germany, Europe’s largest economy, is grappling with several challenges. The country is facing the loss of affordable energy from Russia, alongside bureaucratic hurdles and political gridlock in Berlin. As a result, Germany’s economy contracted by 0.2% in the fourth quarter and recorded the same decline for all of 2024, marking two consecutive years of negative growth.
Looking ahead, the outlook remains grim. The German government has lowered its 2025 economic growth forecast to just 0.3%, down from an earlier projection of 1.1%. As Europe confronts these economic headwinds, all eyes will be on the developments in the eurozone and Germany in the coming year.
Germany and France, two of Europe’s leading economies, are facing significant political turmoil that has left businesses and consumers uncertain about the future of government spending, regulation, and taxes. In Germany, confusion may start to lift after national elections set for February 23, following the collapse of Chancellor Olaf Scholz’s Social Democratic coalition, which has been embroiled in months of disputes over economic policy.
France, on the other hand, may take longer to recover from its political paralysis. The parliament is deeply divided, and the next election isn’t expected until at least July. This division hampers efforts to address the country’s substantial budget deficit.
The business climate has also been unsettled by the election of Donald Trump, whose push for new and higher import tariffs could negatively impact Europe’s export-driven economy. Additionally, the slowing adoption of electric vehicles (EVs) and Germany’s decision to cancel purchase subsidies for EVs have dampened demand among parts suppliers.
Later today, the European Central Bank (ECB) is expected to announce a cut to its key interest rate, a move that could stimulate growth. However, the ECB faces a delicate balancing act: while lower rates can make credit more affordable and encourage growth, they can also exacerbate inflation, which has been rising recently and stood at 2.4% in December due to increasing energy prices.
Consumer sentiment indicators, such as the economic sentiment index from the EU’s executive commission, show that consumers are worried about rising prices. It remains unclear whether these concerns stem from expectations of future price hikes—potentially linked to tariffs from the new Trump administration—or recent price increases.
Economists at Oxford Economics noted, “Regardless of the reason, households expecting inflation to rise will add an additional headwind to the outlook for private consumption, especially as European households are already being cautious with their spending decisions.”
