Euro zone economy stagnates as Germany struggles By Reuters

By Francesco Canepa and Jan Strupczewski

FRANKFURT/BRUSSELS (Reuters) -The euro zone’s economy stagnated last year, weighed down by an industrial malaise in Germany, its former powerhouse, data showed on Tuesday.

The 20 countries that share the euro barely avoided an outright recession in the final quarter of last year even as the zone’s biggest trading partner, the United States, chalked up impressively brisk growth.

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

The euro zone’s largest economy shrank by 0.3% in the last three months of 2023 while in bloc as a whole output was flat, 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.

“The outlook for 2024 continues to be challenging amid faltering demand and increasing geopolitical tensions,” said Diego Iscaro, head of Europe economics at S&P Global Market Intelligence.

“We think that eurozone activity will remain virtually stagnant during the first half of 2024.”

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 United States 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 this was likely to be just above zero.

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, likely rate cuts by the European Central Bank should also ease pressure on the battered construction sector.

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

“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.”