It nevertheless represents a marked slowdown in momentum that underscores how the region is suffering from uncertainty at home and abroad. Political vacuums in the two largest nations — Germany and France — weighed on sentiment even before US President Donald Trump’s re-election. His continuing threats since on trade, as well as his sudden recalibration of the global security architecture, spell more trouble ahead.
Exports and imports declined 0.1% each in the fourth quarter. Private consumption, government spending and investments all rose, but were also all significantly weaker than in the previous three months.
That sluggishness was reflected in updated projections Thursday from the European Central Bank, which downgraded this year’s growth outlook to 0.9% and next year’s to 1.2%. It cited weak exports and persistent underperformance in investments, due in part to tariff spats and difficulties in judging Trump’s policies.It also reduced interest rates by a quarter point in what was probably the last straight-forward cut for officials who are bracing for tough negotiations over what to do at April’s meeting, according to people familiar with their thinking.
Offering reassurances that inflation will continue to moderate, wage growth eased in the fourth quarter. Data Friday from the ECB showed compensation per employee rose 4.1% from a year ago — down from 4.5% the previous period.
While President Christine Lagarde said Thursday that the 2% price target will only be met in early 2026, the ECB still sees the disinflation process as being “well on track.” Closely watched services inflation, where workers’ salaries play an important role, already dipped in February.
Much will depend on the progress European governments make in fleshing out plans to fund massive investments in defense and, in Germany’s case, also infrastructure, in response to the abrupt shift in US foreign policy.
Separately, Eurostat said employment growth eased in the fourth quarter — to 0.1% from 0.2% in the previous three months.
