Eurozone Avoids Recession

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The Eurozone economy avoided falling into recession in the second half of 2024 as Eurostat reports a 0% quarter-on-quarter GDP reading for the final quarter of the year.

Avoiding recession offers some relief on the psychological level, yet the data doesn't alter the reality that this economy continues to struggle.

"GDP growth was stable in the fourth quarter after a small decline in the third. Overall, the economy faces broad-based weakness at a time of weak global demand and structural changes," says Bert Colijn, Senior Economist for the Eurozone at ING Bank.

According to Eurostat, Southern European countries led the way in terms of growth as Spain, Portugal and Italy experienced growth of 0.6, 0.8 and 0.2%, respectively.

Germany continues to drive economic weakness in Europe with a 0.3% contraction in 4Q.

"Germany is struggling with weak global demand for goods and heavy industry is suffering from higher energy prices," says Colijn.

According to Thomas Gitzel, Chief Economist at VP Bank, the growth discrepancies will likely widen even further in the summer.

"The pattern of previous years is likely to repeat itself. Southern European countries will benefit from another good tourism season," says Gitzel.

"Holidays are still a high priority for many consumers this year. Savings are being made on food, furniture and electronic goods, but not on holidays. The beneficiaries of this behaviour are the southern European countries with their relatively high share of tourism in the gross value added of the economy as a whole," he adds.

The German economy is meanwhile anticipated to continue lagging as long as the global economy remains weak owing to its high proportion of exports.

To be sure, market bets for an earlier ECB rate cut might have risen further if the data had undershot expectations, ensuring this data supports the Euro at the margin.

"These numbers do not indicate any urgent need for action on the part of the ECB. The European policymakers are likely to feel vindicated and hold off on lowering interest rates for the time being. The first monetary easing is only likely to be on the agenda once inflation rates are close to the ECB's target values. This is likely to be the case by the middle of the year," says Gitzel.

But Jane Foley, Senior FX Strategist at Rabobank, says the relative softness of the Eurozone economy is still likely to support market speculation regarding a spring rate cut.

"This suggests scope for near-term softness in the EUR," she says.

Euro exchange rates were lower at the start of the new week amidst an ongoing rise in bets that the ECB would cut rates as soon as April.

Slovak central bank chief Peter Kazimir and Governing Council member Mário Centeno directly addressed the prospect of an April cut on Monday.

"The next move will be a cut, and it is within our reach," said Kazimir. "I am confident that the exact timing, whether in April or June, is secondary to the decision's impact."

"There is a lot more information, and (being) data-dependent is not (being) wage-data dependent... we don't need to wait for May wage data to get an idea about the inflation trajectory," said Centeno.