“Unexpected.”
That’s how a handful of mainstream media outlets described news that the euro-zone economy failed to grow during the final three months of 2024.
No one was actually surprised, of course. All “unexpected” meant in this context was that the median economist in Bloomberg’s survey hoped EU statisticians might find a way to extract a 0.1% expansion from the data.
Alas, the bloc’s economy stagnated late last year following a run of decent growth outcomes, Eurostat said Thursday. They didn’t use the word “stagnant.” They like “stable” better. That’s the glass-half-full version of stagnant.
As the figure above reminds you, stagnant’s normal. “Unexpected” was the run of decent growth during the prior three quarters. Slow growth — or no growth at all — is par for the course in Europe, where economic dynamism died in or around the 1600s.
“Weakness remains widespread,” ING’s Bert Colijn sighed. “Don’t expect any immediate pickup, as the outlook is still sluggish.”
Both Germany and France logged contractions in Q4. The downturn in Germany’s particularly disconcerting given the increasingly fractious domestic political environment, which Elon Musk seems bent on exacerbating.
France has its own set of domestic political issues to work through, but daunting (some would say existential) as those are, the situation in Germany feels somehow more indeterminate and also more ominous. As terrifying a prospect as Marine Le Pen in the Élysée most assuredly is, she’s at least a known quantity, and her influence is such now that it feels like she’s already president on some days (despite the possibility that she might be barred from running in 2027). In Germany, it’s hard to get a feel for who’s who, what’s what and what the outcome distribution is.
The figure gives you some perspective for the simultaneous contractions in the bloc’s largest two economies.
That’s the decidedly moribund backdrop against which the ECB cut rates again, as widely telegraphed. Thursday’s move, 25bps, was accompanied by optimistic language around the disinflation process, which the GC said is “well on track.”
Notwithstanding sticky “domestic inflation” (i.e., above-target services sector price growth driven in large part by still-elevated wage gains), price growth trends are “develop[ing] broadly in line” with the bank’s expectations, the new statement said.
As the figure shows, both headline and core inflation are pretty tame in Europe at this point, and given the challenging (to put it mildly) growth outlook, the ECB has good reason to retain an easing bias, even as they continue to insist on the primacy of the inflation fight and even as the statement language retained (by-now-familiar) language stipulating that the GC isn’t “pre-committing to a particular rate path.”
In addition to all sorts of political uncertainty across the bloc, Brussels is bracing for a trade war with Donald Trump, while confronting an acquisitive Kremlin at a time when America’s commitment to NATO and the shared defense of Europe isn’t what it used to be.
Suffice to say these are trying times for the Europeans, and to say monetary policy’s not a panacea would be a laughable understatement. In Thursday’s press conference, Christine Lagarde reiterated that the risks are “tilted to the downside.”
Apparently, Le Pen and Viktor Orban are planning a “Make Europe Great Again” rally in Madrid on February 8. Get your tickets today, and start practicing your “Roman” salutes.
