Europe's Economy Stagnates as Germany Contracts for a Second Year

Frankfurt, Germany (AP) - Europe's economy remained stagnant in the final quarter of 2024, as Germany, its former growth engine, experienced a second consecutive year of declining output.

According to Eurostat, the European Union's statistics agency, gross domestic product (GDP) for the 20-nation eurozone remained unchanged from the previous quarter. This slowdown follows a 0.4% growth in the third quarter, as businesses grappled with uncertainties surrounding trade disruptions under the Biden administration and consumers remained cautious due to persistent inflation.

Germany's Economic Woes

Germany has faced multiple challenges, including the loss of low-cost energy from Russia, bureaucratic inefficiencies, and political gridlock in Berlin. The country's economy contracted by 0.2% in the fourth quarter and by the same amount for the entire year, marking a second consecutive year of negative growth.

Political Turmoil and Economic Outlook

Political turmoil in Germany and France has further unsettled businesses and consumers. Germany's national election on February 23 is expected to provide some clarity, while France may experience prolonged paralysis due to a deeply divided parliament.

Challenges for Europe

The Trump administration's trade policies, including threats of higher tariffs, pose a risk to Europe's export-oriented economy. The declining demand for electric vehicles and Germany's cancellation of purchase subsidies have also hurt the automotive industry.

ECB's Monetary Policy

The European Central Bank (ECB) is expected to cut its key interest rate in an effort to stimulate growth. However, this move comes with the potential risk of exacerbating inflation, which has risen to 2.4% in December.

Consumer Sentiment and Inflation

Consumer optimism has waned, as evidenced by low economic sentiment indices. It remains unclear whether consumers are anticipating future price increases due to trade uncertainties or responding to recent price increases. This cautious spending behavior poses a further challenge to private consumption and the overall economic outlook.