Euro Zone Growth Slows to 0.4% as France Contracts
Eurostat's flash estimate beat forecasts for the third quarter, but France shrank unexpectedly and Italy stalled.
The euro zone economy grew 0.4% in the third quarter, Eurostat said on Friday. That is slower than the 0.6% recorded in the second quarter, which followed stagnation in the first three months of the year. It still beat the 0.2% expected in a Reuters poll of economists.
France shrinks
France was the weak spot. Its economy unexpectedly contracted by 0.1% between July and September, while the country faces sharply higher borrowing costs. Investors are wary of the political fight over cutting its large budget deficit and growing national debt. In October, unrest over living costs and other issues spread across France and sometimes turned into violent, costly riots.
Germany, the largest economy in the bloc, expanded by just 0.2%. Italy, the third-biggest, was flat.
Spain and Ireland lead
Spain grew 0.6%. It has recently seen mass protests over cost pressures and housing, and a snap election is due next month. Even so, it continues to outpace the euro area average, helped by labour market productivity, a healthy tourism industry, domestic demand and a relatively strong fiscal position.
Ireland posted growth of 5.5%. Its headline GDP is volatile and subject to revision because many multinationals are based there while doing business elsewhere.
On Thursday the European Central Bank voted to hold interest rates steady, saying a shock from higher energy prices was not yet feeding into second-round effects in the wider economy. It also said downside risks to growth had increased. Analysts say it may still opt for one more rate hike in December, as energy costs remain elevated.
Joe Nellis, head of economic research at the accountancy firm MHA, said the euro area was "showing unexpected resilience against a backdrop of considerable economic and geopolitical uncertainty". He cautioned that this may be masking weak productivity growth and investment, demographic pressures and declining industrial competitiveness.
"The outlook for 2027 is complicated by the prospect of further inflationary pressures," Nellis said. In his view, energy and transportation costs will keep rising unless the Middle East crisis is resolved very soon, adding to pressure on household finances at a time when consumer confidence is weak.
Source: CNBC