Economic expansion in the euro zone slowed to 0.4% in the third quarter, statistics agency Eurostat said on Friday. The reading was nonetheless higher than the 0.2% growth that economists had forecast in a Reuters poll. This marks a significant deceleration from the 0.6% growth the euro area recorded in the second quarter, which followed stagnation in the first three months of the year.
France's economy unexpectedly contracted by 0.1% over the July to September period, bucking the bloc's overall expansion. The country is grappling with soaring borrowing costs as investors balk at a political struggle to reduce its high budget deficit and mounting national debt. Germany, the euro zone's largest economy, grew by just 0.2% in the third quarter, while growth in Italy, the bloc's third-biggest economy, was flat. Spain, by contrast, grew by 0.6% and continues to outpace the euro area average, driven by labor market productivity, a healthy tourism industry and domestic demand, and a relatively strong fiscal position. Ireland recorded 5.5% growth, though its headline GDP figures are highly volatile and subject to revision due to the large number of multinationals stationed in the country but doing business outside of it.
The European Central Bank voted to hold interest rates steady on Thursday, saying a shock from higher energy prices was not yet feeding into second-round effects in the wider economy. However, analysts said the ECB may still opt for one more rate hike in December as energy costs remain elevated. The central bank also said that downside risks to growth had increased.
Despite the slowdown, Joe Nellis, head of economic research at accountancy MHA, said the euro area is showing unexpected resilience against a backdrop of considerable economic and geopolitical uncertainty. However, he cautioned that this may be masking longstanding structural challenges, including weak productivity growth and investment expenditure, demographic pressures and declining industrial competitiveness. He also warned that the outlook for 2027 is complicated by the prospect of further inflationary pressures, noting that unless the Middle East crisis is resolved in the very near future, energy and transportation costs will continue to rise, putting pressure on the cost of living and household finances.
For savers and households across the euro zone, the combination of sluggish growth, weak consumer confidence and elevated energy costs means purchasing power continues to erode even as central banks hold rates steady.