Euro Economy Flatlines as Germany and France Face Political Crisis

The eurozone’s economy has hit a concerning roadblock, recording zero growth in the fourth quarter of 2024 against expectations of modest expansion. This stagnation is particularly driven by contractions in the region’s powerhouse economies – Germany declining by 0.2% and France by 0.1%.

The economic challenges are deeply intertwined with political instability, as Germany faces an impending snap election that could see Chancellor Scholz replaced, while France grapples with a budget crisis and potential government shutdown.

The broader picture shows a stark divide in the region’s performance: while Spain, Portugal, and Lithuania demonstrate robust growth, core economies like Germany and France struggle with manufacturing decline, weak consumer confidence, and the looming threat of Trump’s trade measures. This economic weakness has increased pressure on the European Central Bank, with markets now pricing in up to four rate cuts through year-end as the region searches for new growth drivers.