FRANKFURT, Oct 30 (Reuters) – The euro zone economy grew quicker than predicted last quarter, Eurostat data showed on Friday, remaining resilient to headwinds from expensive energy as investments and consumption held up.
Economic growth slowed to 0.4% in the third quarter from an exceptionally strong 0.6% in the second quarter, above expectations for 0.2% in a Reuters poll of economists.
Compared to a year earlier, the euro zone economy expanded by 1.3%, above expectations for 1.1%, broadly in line with its potential, a level an economy can achieve without stimulus.
Among the euro zone’s biggest economies, Germany expanded by 0.2% on the quarter, Spain and the Netherlands by 0.6%, while Italy was unchanged and the French economy contracted by 0.1%.
Although the bloc’s growth rate is less than half of the expansion produced by the United States, the figure still far exceeds gloomy projections made after the start of the Iran war earlier in the year.
Europe is a net energy importer and oil price surges immediately reduce growth, compress corporate margins and worsen the bloc’s terms of trade.
But the euro zone has been a surprise outperformer amid the uncertainty as heavy spending on AI, defence and infranstructure boosted investment, robust foreign demand helped industry and households kept on spending, reducing their already high savings rate.
This has led to a string of growth upgrades throughout the year and most forecasters now see expansion above 1% this year and an acceleration in 2027.
Friday’s figures were, however, skewed somewhat by Ireland’s exceptional 5.5% quarterly growth rate, which is large enough to meaningfully lift the euro zone figure.
Irish GDP is prone to exceptional volatility given the presence of large multinational firms, particularly in pharmaceuticals, which have located there for tax reasons.
While the euro zone has been resilient this year, some, including the European Central Bank, fear that its luck could soon run out.
Borrowing costs have increased sharply across the globe in the past two months and this will slow economic growth both at home and abroad.
In addition, a renewed surge in energy costs will also dampen output and even household optimism may evaporate given a jump in natural gas costs to their highest levels since the start of Russia’s war in Ukraine in early 2022.
This fresh energy price jump is likely to force the ECB to raise interest rates again, possibly as soon as December, slowing growth even further.
(Reporting by Balazs Koranyi; Editing by Toby Chopra)
