But for now, it expects growth in Spain and France to remain strong this year, while growth in Germany will slow.
Eurozone GDP increased by 0.2% in the second quarter of 2024. This was the second consecutive quarter of expansion after more than a year of stagnation due to energy price shocks.
S&P Global Ratings expects euro area GDP growth to be 0.8% in 2024 and 1.3% in 2025. However, we expect growth in Spain and France to increase this year, while growth in Germany will slow. Inflation in the region is expected to moderate and reach 2% in the second half of 2025. Lower interest rates will encourage euro area consumers to increase spending at full employment.
However, not all member states are contributing equally to the recovery. Spain and France, in particular, have been the main drivers of economic growth in the euro zone over the past four quarters, while Germany continues to constrain growth, S&P Global said in a release.
Private consumption and investment should become the main drivers of GDP growth next year and beyond, as real income growth accelerates, consumers' perception of disinflation improves, and interest rates fall, S&P Global said in a release. said.
Inflation in the region is expected to moderate and reach 2% in the second half of 2025.
Consumers will become more aware of disinflation, and lower interest rates should make savings less attractive. Consumer spending should therefore increase and be more closely aligned with purchasing power, driving GDP growth.
The European Central Bank (ECB) is likely to continue cutting interest rates quarterly until deposit rates reach 2.5% in the third quarter of next year, according to rating agencies.
However, several factors cloud S&P Global Ratings' outlook on the economic outlook. Labor costs are still rising rapidly, especially in industry, and a more pronounced downturn in the labor market is possible.
Fiscal policy could be more restrained next year, while external trade could support growth. Geopolitical factors can erode trust and disrupt supply chains. Declining confidence metrics often contradict hard data and add information noise.
The German economy is expected to gradually catch up with the German economy from the second half of 2024 as the inflation gap narrows.
Lower interest rates would encourage euro area consumers to increase spending at full employment.
S&P Global added that the outlook for the economy remains relatively weak, with the potential for a weaker labor market, more restrained fiscal policy, and more restrained foreign trade.
Fibre2Fashion News Desk (DS)
