France shrinks as euro zone growth falls to 0.4 percent in third quarter

The 21-nation euro zone economy expanded by 0.4 percent in the third quarter of 2026, a slowdown from the previous period that left the region below the pace seen in early summer.

Eurostat released the flash estimate on Friday, showing a sharp deceleration from the 0.6 percent growth recorded in the second quarter. This figure surpassed the 0.2 percent projection from a Reuters poll of economists, though it marked a clear retreat from the rebound seen after the stagnation of the first quarter.

France, which has faced a political struggle over its budget deficit and mounting national debt, saw its economy contract by 0.1 percent between July and September. The contraction came as investors raised borrowing costs and nationwide unrest over the cost of living escalated into violent and costly rioting in October.

Germany, the largest economy in the bloc, grew by only 0.2 percent during the same period. Italy, the third-largest economy, recorded flat growth. Spain, which has recently faced mass protests and called a snap election for next month, grew by 0.6 percent, outpacing the regional average due to a healthy tourism industry and domestic demand.

Ireland reported a 5.5 percent increase, although its headline figures remain volatile due to the presence of multinationals that conduct business outside the country. The European Central Bank held interest rates steady on Thursday, noting that higher energy prices had not yet triggered secondary inflationary effects. Analysts indicated the bank may still pursue one final rate hike in December if energy costs remain elevated.

The central bank stated that downside risks to growth had increased. Joe Nellis, head of economic research at accountancy firm MHA, described the region as showing unexpected resilience despite considerable economic and geopolitical uncertainty. He warned that this stability might obscure structural issues, including weak productivity growth, low investment expenditure, and demographic pressures.

Nellis added that the 2027 outlook is complicated by the potential for further inflationary pressures. He noted that unless the Middle East crisis is resolved quickly, energy and transportation costs will continue to rise. This trend will place additional strain on household finances and consumer confidence at a time when both are already fragile.