The euro area economy expanded by 0.2 percent in the fourth quarter of 2024, slowing from the 0.4 percent growth in the third quarter. While year-over-year growth improved slightly to 1.2 percent from a revised 1.0 percent, the quarter-over-quarter deceleration signals cooling economic momentum as both investment and external trade softened.

Household spending remained a key driver, rising by 0.4 percent, though slower than the previous quarter's 0.6 percent, contributing 0.2 percentage points (pp) to GDP growth. Government spending also grew by 0.4 percent, adding 0.1 pp, yet its influence waned compared to the third quarter. Fixed investment saw a notable decline in momentum, rising by 0.6 percent compared to 1.8 percent in the third, indicating business caution amid uncertain conditions.

Trade continued to drag, with exports falling by 0.1 percent, a marginal improvement from minus 1.4 percent previously, while imports declined by 0.1 percent, resulting in a negligible net trade contribution. Meanwhile, inventory reductions shaved off 0.2 pp from GDP, suggesting firms are adjusting to lower demand expectations.

Within the region's quarterly advance, France fell by 0.1 percent, while Germany fell by 0.2 percent. Spain posted a solid 0.8 percent for a fourth straight quarter, while Italy rose slightly by 0.1 percent. In essence, the euro area economy continues to grow slowly, with consumer and government spending growth, weakening investment, and subdued trade dynamics shaping the near-term outlook. The latest update takes the euro area RPI to 24 and the RPI-P to 30, meaning economic activities remain well ahead of market expectations.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy and is usually released early in the third month after the reference period. Following two provisional (flash) estimates containing only limited information, this report provides the first full look at the national accounts for the region.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Currency traders prefer healthy growth and higher interest rates. Both typically lead to increased demand for a local currency. However, inflationary pressures can put downside pressure on a currency regardless of growth. For example, if inflation remains above the ECB’s near-2 percent target for long enough, worries about the impact of lost competitiveness on the merchandise trade balance could prompt investors to switch to an alternative currency.