By Balazs Koranyi
FRANKFURT (Reuters) – The euro zone economy stagnated last quarter as worried consumers zipped up their purses, adding to fears that a long-predicted recovery could be further delayed, Eurostat data showed on Thursday.
Gross domestic product in the 20 nations sharing the euro was unchanged compared with the previous quarter, falling short of expectations for a 0.1% expansion in a Reuters poll, as two straight years of contraction in Germany weighed on the bloc as a whole.
Euro zone growth has been anaemic for the past two years as industry is in deep recession on high energy costs, governments have little cash to spend and households have saved more, hurting consumption.
This weakening trend has only accelerated in recent months on concern that the labour market is softening and a trade war with the United States could drag an already weak economy even lower.
Such a negative sentiment loop is a key reason why the European Central Bank is all but certain to cut interest rates for the fourth straight meeting on Thursday and signal even more policy easing.
Part of the quarterly growth miss may be down to Ireland, however, which recorded a 1.3% decline. The heavy presence of multinationals there, including the world’s top tech and pharmaceutical companies, distorts its growth figures and causes volatility.
Compared with a year earlier, fourth-quarter growth in the euro zone was up 0.9%, below expectations for 1.0%.
Among the euro zone’s biggest economies, Germany and France both contracted while Italy stagnated and Spain reported 0.8% growth.
Highlighting the bloc’s labour market difficulties, unemployment ticked up to 6.3% in December from 6.2% a month earlier, separate Eurostat figures showed.
Growth is expected to accelerate through 2025 and rise in 2026 to the so-called “potential”, or the steady state without stimulus and without generating excess inflation.
The problem is that this rate is only around 1.4%, well below the 1.8%-1.9% estimate for the U.S., suggesting that the euro zone will keep trailing the world’s biggest economy for years to come.
A key reason for this is that productivity growth in the euro zone is anaemic and structural faults, from cumbersome regulation and political discord to fragmented markets, will hold back any improvement.
Even this modest recovery to potential growth is in doubt, however.
Figures have disappointed for much of the past year as policymakers have overestimated consumer resilience.
Households have rebuilt savings lost to rapid inflation but are increasingly worried about the loss of employment, so spending is unlikely to return in any meaningful way.
(Reporting by Balazs Koranyi; Editing by Hugh Lawson)
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