Eurozone GDP Beats Forecasts, Shows Resilience Despite Iran War Energy Shock

The eurozone economy expanded 0.4% in the third quarter, beating the 0.2% consensus forecast, as higher oil prices from the US-Iran war failed to derail growth. Compared with the same period a year earlier, gross domestic product in the 21-country currency bloc rose 1.3%, according to EU statistics agency Eurostat.

The headline figure was distorted by a 5.5% surge in Ireland, where volatile data reflects the presence of multinational tech and pharmaceutical firms. Excluding Ireland, eurozone growth was 0.2%.

Performance varied sharply among the bloc’s largest members. Germany, the eurozone’s biggest economy, grew 0.2% despite headwinds from elevated energy costs and low water levels in the River Rhine that disrupted commerce. Spain expanded 0.6%, driven by domestic demand and trade. Italy’s economy stagnated. France contracted 0.1%, deepening its status as the region’s major laggard. The Netherlands and Estonia also posted 0.6% growth.

“Households and businesses have not pared back their spending due to the Iran war,” said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, as reported by abcnews.com. “All in all, the eurozone economy remains resilient amid geopolitical turmoil and a worsening inflationary environment,” added Paolo Grignani, senior economist at Oxford Economics, according to the same outlet.

Inflation remains a concern. French consumer prices jumped 3.8% in October, the highest since late 2023. Spanish inflation, though easing slightly, stood at 4.9%. Both remain above the European Central Bank’s 2% target. The ECB left interest rates unchanged at its policy meeting this week but flagged downside risks and could hike rates for a third time in December. Policymakers are wary of so-called second-round effects, where higher oil prices begin to influence wages and prices more broadly, though such effects have not yet materialized.

France’s political and fiscal troubles have made it the region’s focal point. The economy shrank 0.1% amid a parliamentary showdown over austerity. “France’s economy is at a standstill due to a unprecedented convergence of external and domestic shocks,” Finance Minister Roland Lescure said on Friday, as reported by Businesstimes. “It needs to pick up. We need to restore confidence and for that having a budget is essential as that is what will allow us to bring down interest rates.” Prime Minister Sebastien Lecornu faces another budget battle against a backdrop of social unrest and far-right gains ahead of 2027 presidential elections.

Germany’s 0.2% growth came despite the Rhine’s low water levels and high energy prices. A public-spending spree on infrastructure and defence is generating optimism, while carmakers may benefit from a European cap on Chinese hybrid-vehicle imports, according to Businesstimes. Chancellor Friedrich Merz has pursued social-welfare reforms and efforts to attract private capital.

Italy’s government forecasts GDP will increase 1% in 2026, helping finance tax cuts promised by Prime Minister Giorgia Meloni before elections next year, Businesstimes reported. Rome has asked Brussels for about €28 billion ($31.3 billion) in extra fiscal leeway for energy and defence spending. Any growth slowdown would complicate Italy’s goal of reducing its budget deficit below 3% of output.

Spain has shown significant resilience. The central bank lists private consumption, job creation and population growth as drivers, and sees growth of 2.6% in 2026 and 2.2% in 2027, comfortably above the eurozone average, according to Businesstimes. The economy has largely shaken off political instability, including Prime Minister Pedro Sanchez’s inability to pass a budget.

The eurozone’s broader sturdiness also reflects resilience to summer heat waves and droughts, not just the Iran war’s inflationary impact. But the jump in global bond yields remains a drag, and the ECB has signaled it stands ready to act if inflation pressures broaden. The mixed performance among member states underscores the challenge for policymakers: cooling inflation without choking off modest, uneven growth.