Bahrain Telegraph - Eurozone growth holds up despite energy crunch

Economists said the single currency area's growth held up well but warned of the potential for stagflation -- a nightmare mix of stagnant growth and high inflation.

The EU's statistics agency said GDP across the 21-country euro area expanded by 0.4 percent in the third quarter, a slowdown from the 0.6 percent seen in the second quarter.

The figure was higher than the 0.2 percent predicted by economists surveyed by Bloomberg.

But Ireland's whopping 5.5-percent growth in the third quarter skewed the data, as economists said the euro area grew by 0.2 percent excluding Ireland.

"The eurozone economy seems to have shrugged off the Middle East crisis," ING chief economist Bert Colijn said in a note. "Despite a worsening energy shock, the economy continues to be resilient."

He pointed to European industry benefiting from higher spending on defence and infrastructure, as well as the tech boom.

Paolo Grignani, senior economist at Oxford Economics, said the data "paint a mixed picture for the eurozone with stagflationary tendencies: GDP growth held up well, but national inflation releases surprised to the upside".

Eurozone inflation hit a three-year high of 3.8 percent in September, as the US-Israel war on Iran fuelled a surge in energy prices.

With Europe heading for winter, experts warned there are challenges ahead.

Colijn said that "steadily" rising energy costs, including gas prices, means Europe "will see an additional growth challenge" in the winter.

- 'Uneven' picture -

The growth came despite France, the euro area's second-biggest economy, recording a quarterly GDP contraction of 0.1 percent, deepening concerns about its public finances and growing political tensions ahead of presidential elections next spring.

The figure means that France's economy has not grown at all in 2026.

There is already growing concern about France's problems since the country's bond yields -- which affect the cost of government borrowing -- surged to their highest levels since 2002 last week amid a standoff over next year's budget.

Meanwhile, growth in Germany, Europe's largest economy, was higher than expected at 0.2 percent in the July to September period, after expanding by 0.3 percent in the second quarter.

Italy recorded no economic growth in the third quarter, while Spain maintained its rhythm at 0.6 percent GDP growth in the third quarter.

"Growth is becoming increasingly uneven across countries, with Germany and Spain gaining traction while France and Italy slow," Oxford Economics' Grignani said in a note.

Y.al-Qattan--BT