Eurozone GDP Beats Forecasts as France Contracts and Spain Leads Growth

The eurozone expanded faster than expected in the third quarter, but the 0.4 per cent rise in gross domestic product masks sharply different results across its largest economies. Germany and Spain grew, Italy stagnated and France contracted by 0.1 per cent. For businesses and investors, the gap matters: the bloc’s aggregate pace offers little assurance that demand and output are strengthening evenly.

Growth across the 21-member currency bloc was twice the pace analysts had forecast. That resilience came despite elevated inflation, higher bond yields and a summer marked by heat waves and droughts. The figures show that the region kept growing through several sources of pressure, though they don’t establish how durable that momentum will be.

Inflation complicates the growth picture

Price pressures remain a central uncertainty. Consumer prices in France rose 3.8 per cent in October, the highest level since late 2023. Spain’s inflation rate eased slightly, as anticipated, but remained high at 4.9 per cent. Inflation had not yet spread beyond energy, but further increases would make it harder for households and businesses to absorb costs without changing their spending plans.

The European Central Bank has warned of downside risks and could raise interest rates for a third time in December, after leaving them unchanged this week. Higher borrowing costs can weigh on household purchases, business investment and financing across the currency bloc. The bank’s decision will depend in part on whether price increases remain concentrated in energy or become more widespread.

Bond yields have also climbed, adding pressure to financing conditions. France is particularly exposed: weak domestic demand and falling investment had left its economy close to recession in the first half of the year, while hot weather hurt agriculture. Its latest contraction adds to the evidence that the bloc’s headline growth figure is being carried by uneven national performances.

Germany’s modest expansion and Spain’s stronger pace

Germany’s GDP increased 0.2 per cent, despite low water levels in the River Rhine. Plans for higher spending on infrastructure and defence have helped lift expectations for future activity. The country’s carmakers may also benefit from a European cap on Chinese hybrid-vehicle imports, though the source provides no estimate of the potential effect on sales or output.

Efforts to lift German growth also include changes to social welfare and attempts to attract private capital. The test will be whether these measures translate into sustained investment and production. A single quarter of growth, especially one at 0.2 per cent, provides limited evidence about the strength of the recovery.

Spain’s latest GDP reading drew support from domestic demand and trade. Its central bank has pointed to private consumption, job creation and population growth as drivers. It forecasts growth of 2.6 per cent in 2026 and 2.2 per cent in 2027, rates comfortably above the eurozone’s pace.

That strength gives Spain a different growth profile from France and Germany, but the elevated 4.9 per cent inflation reading remains a constraint. If household purchasing power comes under pressure, consumption could weaken; if it holds up, domestic demand may continue to support output. The available figures identify the drivers, but don’t settle how they will evolve.

Italy’s growth target and France’s weak starting point

Italy recorded no growth in the third quarter. Its government forecasts GDP will increase 1 per cent in 2026, a projection tied to plans for tax cuts. It has also sought about 28 billion euros (US$31.3 billion) in additional flexibility for energy and defence spending. Slower growth could make those spending plans and other fiscal commitments harder to reconcile, including the goal of bringing the budget deficit below 3 per cent of output.

France faces a more immediate challenge. Its economy shrank by 0.1 per cent in the third quarter after soft demand, lower investment and damage to agriculture had already weakened activity. Finance Minister Roland Lescure described the economy as being at a standstill and said restoring confidence and having a budget were essential to bringing down interest rates.

The uneven results leave the eurozone with a clear tension: output grew faster than expected, yet inflation and financing costs remain high, while France contracted and Italy failed to expand. Spain’s stronger forecast and Germany’s modest growth provide support, but the next readings will show whether the third-quarter advance reflects broadening demand or strength concentrated in a few parts of the bloc.