The euro zone's economic growth slowed to 0.4% in the third quarter of 2026, according to Eurostat. This marks a deceleration from the 0.6% expansion seen in the second quarter, though it still exceeded economists' forecasts of 0.2% growth. France, however, saw an unexpected contraction of 0.1% during the same period, as the country struggles with high borrowing costs and political challenges over its budget deficit and national debt. The nation has also faced widespread protests and riots over the cost of living.
Germany, the euro zone's largest economy, managed only 0.2% growth in the third quarter, while Italy's growth was flat. Spain, despite recent mass protests and a snap election called for next month, grew by 0.6%, outperforming the euro area average due to strong labor productivity, tourism, and domestic demand. Ireland recorded a significant 5.5% growth, though its figures are volatile due to the presence of many multinationals.
The European Central Bank kept interest rates steady on Thursday, noting that higher energy prices had not yet caused broader economic effects. Analysts suggest another rate hike could come in December as energy costs remain high. The ECB also highlighted increased downside risks to growth. Joe Nellis, head of economic research at MHA, described the euro area as showing 'unexpected resilience' amid economic and geopolitical uncertainty, but cautioned about longstanding structural challenges.
Looking ahead to 2027, Nellis warned of further inflationary pressures, particularly if the Middle East crisis persists, which would drive up energy and transportation costs. This would add to the cost of living and strain household finances, especially as consumer confidence remains weak.