France became the bloc’s most visible weak point in the third quarter, its economy shrinking by 0.1% as soaring borrowing costs and political turmoil over its budget deficit deepened investor alarm.
The contraction was unexpected and came against a backdrop of mounting civil unrest, with the CGT union reporting 800,000 people demonstrating across the country in October, including 250,000 in Paris alone.
Despite France’s troubles, the broader 21-nation euro area managed to outperform market expectations, with Eurostat recording 0.4% growth for the July-to-September period when published on Friday.
Economists polled by Reuters had forecast expansion of just 0.2%, making the aggregate result a meaningful beat even as the headline figure marked a slowdown from 0.6% growth in the second quarter.
Germany, the bloc’s largest economy, eked out 0.2% growth, while Italy recorded no expansion at all, leaving two of the euro zone’s four biggest economies contributing very little to overall momentum.
Spain stood apart from its larger peers, posting 0.6% growth and continuing to outpace the euro area average, supported by a productive labour market, a resilient tourism sector, strong domestic demand, and a comparatively healthy fiscal position.
Ireland recorded headline growth of 5.5%, though analysts treat that figure cautiously given the country’s large concentration of multinationals, which makes its GDP data highly volatile and prone to revision.
The European Central Bank voted on Thursday to hold interest rates steady, judging that elevated energy prices had not yet triggered broader second-round inflationary effects across the wider economy.
However, the ECB acknowledged that downside risks to growth had increased, and analysts suggested a further rate rise in December remained a live possibility if energy costs stayed elevated.
Joe Nellis, head of economic research at accountancy MHA, said the euro area was “showing unexpected resilience against a backdrop of considerable economic and geopolitical uncertainty,” but warned the headline figures could be obscuring deeper problems.
Those structural weaknesses, Nellis argued, include sluggish productivity growth, insufficient investment spending, unfavourable demographic trends, and a steady erosion of industrial competitiveness across the bloc.
He also struck a cautious note on the year ahead, warning that “the outlook for 2027 is complicated by the prospect of further inflationary pressures. Unless the Middle East crisis is resolved in the very near future, energy and transportation costs will continue to rise, putting even more pressure on the cost of living and household finances at a time when consumer confidence is weak.”
The euro zone entered the third quarter having stagnated entirely in the first three months of the year, making even modest expansion a relative improvement, though the path to durable recovery remains narrow.