France contracts 0.1% as budget deadlock weighs on confidence

The eurozone economy grew 0.4% in the July-September quarter compared with the previous three months, Eurostat reported Friday, a stronger result than the 0.2% that market analysts had expected. Year over year, gross domestic product across the 21 European Union member countries that use the euro rose 1.3%.

The expansion persisted despite higher oil prices from the U.S.-Iran war. The continued growth shows that “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.

“All in all, the eurozone economy remains resilient amid geopolitical turmoil and a worsening inflationary environment,” wrote Paolo Grignani, senior economist at Oxford Economics.

Still, economists pointed to “worrying signs” that higher oil prices are spreading to other sectors. Such second-round effects — where high oil prices start to influence wages and prices throughout the economy — would support higher interest rates from the European Central Bank.

Inflation of 3.8% remains above the ECB’s 2% target. The central bank left rates unchanged at its policy meeting Thursday, and it may raise rates at its next meeting in December to cool inflation. Such a move would impose higher borrowing costs on the economy even as growth remains modest and unevenly distributed among member countries.

Among the bloc’s largest economies, Germany grew 0.2% despite headwinds from high energy prices and low river levels that disrupted commerce. France contracted 0.1% as a political deadlock over how to address an outsized budget deficit continues to weigh on business confidence. Spain, the Netherlands and Estonia were among the stronger performers, each growing 0.6%.

The overall figure was distorted by an increase of 5.5% in Ireland, where quarterly numbers are volatile because the country hosts multinational technology and pharmaceutical companies whose global activities can influence the figures. Excluding Ireland, eurozone growth was 0.2%.