Surprises, disappointments and uncertainties in the international economy

In 2024, the global economy remained resilient in an environment marked by restrictive financial conditions and, overall, the major international economies managed to grow by more than expected. The biggest surprise was the US, where the strength of domestic demand and of the labour market propelled GDP to rates of nearly 3%, twice what the consensus had predicted at the start of the year. China also managed to grow more than expected. After a bumpy start to the year due to the housing crisis and weak domestic demand, the country’s economy gained cyclical momentum in the final stretch of the year to reach the 5% target, thanks to a combination of fiscal and monetary stimulus measures and support for the real estate sector. Even the euro area recovered slightly more than predicted, with GDP growth in 2024 of 0.7% (a year ago the consensus was predicting 0.5%). That said, there was significant internal disparity and only Spain (which more than doubled the growth rate expected by the consensus) performed clearly better than expected, while Germany once again disappointed and is yet to recover its pre-pandemic GDP level. Despite these surprises and the fact that global monetary policy is no longer as restrictive as it was a few quarters ago, 2025 is still set to be a challenging year. After all, the threat of greater economic fragmentation has now been added to the risk map, with an increase in trade barriers and uncertainty that has already begun to materialise at the close of this report. The US has announced tariffs of 25% on virtually all imports of goods from Mexico and Canada (10% on Canadian energy products) and of 10% on China (in addition to eliminating the duty-free de minimis threshold). Forty-eight hours after signing the executive order, the White House froze the decision on Mexico and Canada for a month; this marked a pause for the tariffs, but not for the prospect of a 2025 conditioned by uncertainty.

US GDP grew by 2.8% in 2024, enjoying a strong boost from domestic demand, which contributed 3.1 pps to the year’s total growth due to the strength of both investment and private consumption. In addition, the US economy ended the year on a good note, growing by a remarkable 0.6% quarter-on-quarter in Q4 2024. In contrast, the euro area’s GDP disappointed once again with stagnation in Q4 (0.0% quarter-on-quarter), placing the bloc’s growth for 2024 as a whole at 0.7%. The sluggishness affected all the major economies, except Spain, which stood out with a quarter-on-quarter growth rate of 0.8%, and in all cases, except for Italy, foreign demand posed a burden for the economy in Q4. France contracted 0.1% quarter-on-quarter and registered an average growth rate of 1.1% in 2024. Italy stagnated for the second consecutive quarter and its average growth in 2024 was 0.5%. Finally, Germany shrank by 0.2% quarter-on-quarter and suffered a setback of 0.2% in 2024 as a whole (after –0.1% in 2023), meaning that its GDP has not yet recovered pre-COVID levels.

The first economic activity data for 2025 continue to paint a picture of buoyant growth in the US economy. The manufacturing ISM, at 50.9 points in January, abandoned contractionary territory for the first time since 2022, and the services ISM remained comfortably within the expansionary zone (52.8). The GDP trackers, meanwhile, hint at growth of +0.7% quarter-on-quarter in Q1 2025, although with very preliminary information. In the euro area, the PMIs recovered slightly in January, with a composite index of 50.2 points, marking the best figure in five months. However, this level is only just above the boundary between expansion and contraction. Moreover, the sectoral breakdown continues to show declining manufacturing activity (46.6) versus modest growth in services (51.3) and, by country, there are persistent signs of weakness in France (47.6) and Germany (50.5, a timid figure but, in this case, an eight-month high). The euro area’s labour market, for its part, remains resilient with an unemployment rate at 6.3% in December (the second lowest rate in the historical series) and an incipient improvement in the employment expectations indicator (98.8 points in January vs. a historical average of 100). On the other hand, the ECB’s bank lending survey showed an unexpected tightening of credit standards, concentrated in Germany and France, which institutions attributed to greater uncertainty in the macroeconomic scenario.

Although there has recently been a slight rebound in headline inflation, both in the US (2.9% year-on-year in December, +0.2 pps) and in the euro area (2.5% in January, +0.1 pp), this is essentially due to volatility in energy prices. Most notably, the data continue to reflect a moderation in the underlying price pressures. This disinflation is most visible in the euro area, where core inflation (which excludes energy and food) was 2.7% in January and, although it has remained at that level for the fifth consecutive month, more real-time indicators point to lower rates (the momentum of the core HICP, or its annualised quarter-on-quarter rate of change, was 1.8%). In addition, the indicators reflect a slowdown in wage growth and a compression of corporate margins across the euro area, reinforcing the medium-term disinflationary outlook. In the US, the latest core CPI figure offered slightly more optimism, after months of downward resistance. Specifically, core inflation decreased by 0.1 pp to 3.2% in December; although a modest decrease, this was the first since August and it was also accompanied by an annualised month-on-month rate of 2.7% (five-month low), as well as the second consecutive decrease in services inflation (although this indicator remains high, at 4.4% year-on-year).

In Q4 2024, the Chinese economy accelerated significantly, recording GDP growth of 1.6% quarter-on-quarter (up from 1.3% in Q3, revised upwards by +0.4 pps compared to the first estimates) and 5.4% year-on-year (vs. 4.6% in Q3). With these figures, which are the highest since the first half of 2023 (when the economy was recovering from a long period of zero-COVID policies), China’s GDP managed to grow by 5.0% in 2024 as a whole, beating expectations and meeting the authorities’ target. This acceleration came with signs of improvement in domestic demand and benefited from the support measures announced by the Chinese authorities since the summer, in addition to continued strong export growth and some signs of frontloading (such as the increase in exports to the US at the end of 2024) in anticipation of the expected US-China tariff hikes.