Euro Zone’s Stagnant Economy Weighed Down by German Malaise


The euro zone’s economy experienced stagnation in the past year, primarily due to an industrial downturn in Germany, the region’s former economic powerhouse, according to recent data. Although the euro zone narrowly avoided an outright recession in the final quarter of 2023, the United States, its biggest trading partner, displayed impressive growth. Geopolitical factors disrupted Germany’s business model, which heavily relied on inexpensive energy from Russia and intensive trade with China. Germany’s economy contracted by 0.3% in the last three months of 2023, contributing to flat output in the entire bloc.

Extended Sluggishness and Challenging Outlook

This marked the sixth consecutive quarter of limited or no growth for the euro zone. Diego Iscaro, Head of Europe Economics at S&P Global Market Intelligence, cautioned that the outlook for 2024 remains challenging due to faltering demand and escalating geopolitical tensions. In stark contrast, the United States shrugged off recession predictions and achieved a 2.5% growth rate in the previous year. Eurostat did not provide an annual figure for the entire euro zone, as the report may undergo revisions, particularly concerning Irish output. However, the annual figure is expected to be only slightly above zero.

Inflation, Strikes, and the Economy

The year began with a series of strikes and protests driven by concerns over inflation, including demonstrations by farmers in Germany and France who opposed the gradual reduction of subsidies from the European Union. As inflation starts to decrease, workers are expected to regain some purchasing power during the current year. However, Christoph Weil, an economist at Commerzbank (ETR:CBKG), believes that this may not be enough and predicts a significant upturn is unlikely for the rest of the year. Weil also notes that due to persistently high inflation, the European Central Bank (ECB) is unlikely to lower its key rates before summer, which will delay any positive impact on the economy until 2025.