Eurozone economy grows marginally, boosted by household spending

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The eurozone economy grew 0.2% on a quarterly basis in the final three months of 2024, according to Eurostat’s third estimate. This was up from 0.1% in the second estimate, while also being ahead of the third quarter’s 0.4% growth. 

The European Union’s output or GDP inched up 0.4% in the fourth quarter of the year, which was the same as the third quarter. 

Growth at the end of the year was driven in part by household spending, which increased 0.6% in the EU, whereas government expenditure advanced 0.3%. Both imports and exports slid 0.1% in the EU.

The European Union’s two biggest economies faced hurdles, with France’s gross domestic product (GDP) falling 0.1%, with Germany’s economy also contracting by 0.2% quarter-on-quarter. 

The Austrian economy fell 0.4%, with Finland also experiencing a GDP drop of 0.2%.

Malta’s economy dipped 0.7%, while the Latvian economy was mostly flat. 

However, Italy’s economy inched up 0.1%, which was a step above the flat reading in the last estimate. Ireland also experienced growth of 3.6%, revised from a fall of 1.3% in the previous estimate. 

The Greek economy advanced 0.9% quarter-on-quarter, whereas the Portuguese economy grew 1.5%. Lithuania’s GDP inched up 0.8%, with Spain’s economy also growing at the same rate. 

The Estonian economy rose 0.7%, with Slovakia’s GDP increasing 0.5% and Slovenia’s economy expanding 0.6%. Cyprus saw a comparatively smaller rise than most other EU countries, at 0.3%. 

Eurozone GDP inched up 0.9% for the whole of 2024, with EU GDP growing 1%. This was compared to a growth of 0.4% in both zones in the previous year. 

“Last year’s growth being stronger than first thought is a positive and suggests momentum heading into 2025 is a bit better than expected. The market is looking forward now, and the hope is that the huge plans for fiscal spending can accelerate a recovery over the rest of the decade,” said Kyle Chapman, FX markets analyst at Ballinger Group. 

ECB likely to slash deposit rates in next few months

Oxford Economics forecasts that the European Central Bank is likely to reduce deposit rates in April and June. The ECB announced a cut of 25 basis points at its March meeting on Thursday, bringing the deposit rate down to 2.5%.

Germany has recently announced that it plans to reform its cap on state borrowing, which could lead to higher defence spending, with several other European countries also planning to ramp up military spending. 

However, there is still little clarity as yet on how this is expected to affect the EU’s monetary policy, according to Oliver Rakau, chief Germany economist at Oxford Economics. 

“Even a swift and large lift to defence spending is unlikely to impact the economy much before the end of the year and more likely next year. At the same time, the higher rates that markets have priced now are an immediate drag on financial conditions, whose easing was supposed to be an important lift to activity this year,” he said. 

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Rakau also highlighted that this would exacerbate downside risks to growth. 

He added: “So overreacting with an immediate policy pause in response to possible fiscal policy easing would likely have adverse repercussions.”