Euro Zone Growth Slows to 0.4% as France’s Economy Shrinks
Euro zone GDP rose 0.4% in the third quarter, beating forecasts, but France contracted 0.1% and Italy stalled as energy costs pushed up inflation.
The economy of the countries that share the euro grew 0.4% in the third quarter of 2026, slower than the prior quarter but twice the pace economists had expected, according to a preliminary estimate published Friday by Eurostat, the European Union’s statistics agency. The headline figure hid a sharp divide: France, the bloc’s second-largest economy, shrank 0.1%, Italy did not grow at all, and Ireland posted an outsized gain.
What happened
Gross domestic product, the broadest measure of goods and services produced, rose 0.4% from the previous quarter in the euro zone, down from 0.6% in the second quarter, Eurostat’s flash estimate showed. ActionForex, a market news site, reported that the consensus forecast had been 0.2%. Compared with a year earlier, output was up 1.3%, a touch better than the 1.2% annual pace in the second quarter, Il Sole 24 Ore, the Italian financial daily, reported. Across the wider 27-member European Union, growth was 0.5% on the quarter and 1.5% on the year.
ActionForex said the result “exceeded expectations, but the improvement was not broad-based.” Performance varied widely among the larger economies:
- Germany: up 0.2%, slowing from 0.3% but ahead of the 0.1% expected. Federal statistics office Destatis reported annual growth of 1.2%, which Il Sole 24 Ore described as the strongest since the third quarter of 2022.
- Spain: up 0.6%, down from 0.7%, and up 2.7% from a year earlier.
- Italy: flat, after a 0.2% gain in the second quarter. Among the 15 countries with available data, only France and Lithuania, which fell 1%, did worse, according to Il Sole 24 Ore.
- Ireland: up 5.5%, following 10.2% in the second quarter. ActionForex noted that Eurostat considers the Irish figure experimental and based on incomplete data, while Trading Economics, a data provider, linked it to AI-related investment.
Why France stands out
France’s national statistics institute, INSEE, said GDP fell 0.1% from the prior quarter and 0.1% from a year earlier. Trading Economics called that the first annual decline since late 2020 and put the consensus at a 0.1% quarterly gain, although its written summary cited an expected rise of 0.2%. Il Sole 24 Ore said only that markets had predicted a small increase.
The French economy has now gone three quarters without growth, after a 0.2% drop in the first quarter and a flat second quarter, the Spanish news site Demócrata reported. Trade was the main drag, subtracting 0.6 percentage points. Exports fell 1.7% after rising 2.8% in the prior quarter, with transport equipment shipments down 9.1%, according to Trading Economics. Fixed investment, such as spending on buildings and equipment, fell 0.6%.
French households were a bright spot. Consumer spending rose 0.4%, up from 0.2%, suggesting people kept buying even as output weakened. But early signs for the current quarter are softer. Demócrata reported that a closely watched survey of business activity, the composite purchasing managers’ index, fell to 48.4 in October from 51.1. A reading below 50 signals contraction.
What it means for households
Growth is arriving alongside rising prices, which can erode what families are able to buy. Euro zone inflation reached 3.8% in September, the highest since September 2023, with energy prices up nearly 19%, Trading Economics reported. National figures for October point to continued pressure. French consumer prices rose 3.4% from a year earlier, with energy up 24.1%, Demócrata reported, while Il Sole 24 Ore put Spanish inflation at 4.9%.
Borrowing costs are also in play. The European Central Bank, which sets interest rates for the euro zone, left its deposit rate at 2.5% on Thursday. Trading Economics reported that the bank’s president, Christine Lagarde, said officials discussed a hike but “unanimously agreed to hold rates steady,” and that policymakers gave no clear guidance on what comes next. The bank raised rates in September for the first time since 2023. A hike would generally make mortgages and business loans more expensive, which could further weigh on growth.
What comes next
All of these figures are early and may be revised, and the flash release does not break down what drove the euro zone’s growth. Eurostat is due to publish its next estimate on Nov. 13, while a final French reading is scheduled for Nov. 27, according to Trading Economics. The first estimate of euro zone inflation for October is expected on Nov. 4, ahead of the central bank’s next decisions on rates.
