Key Points:
- Eurozone GDP grew 0.4% in Q3, doubling forecasts and signaling a modest recovery after prolonged stagnation.
- Growth was driven by strong consumer spending, lower energy costs, and rebounds in Germany, France, Spain, and Italy
- The upturn complicates the ECB’s policy outlook, as inflation nears target but risks of slowdown persist
- Analysts warn recovery remains uneven and vulnerable to global headwinds and fiscal tightening.
BRUSSELS: The eurozone economy posted stronger-than-expected growth in the third quarter, raising cautious hopes that the 20-nation bloc may be emerging from a prolonged period of stagnation and high inflation.
According to preliminary data released by Eurostat on Thursday, the euro area’s gross domestic product (GDP) expanded by 0.4 per cent quarter-on-quarter and 1.1 per cent year-on-year, outperforming market expectations of 0.2 per cent and 0.9 per cent, respectively. The upturn was supported by resilient household consumption, falling energy prices, and a rebound in manufacturing and services activity across major economies.
Economists said the figures suggest that the eurozone has weathered last year’s energy crisis and monetary tightening better than anticipated. “The latest GDP print shows surprising strength in domestic demand,” said Carsten Brzeski, chief economist at ING (Internationale Nederlanden Groep), a major Dutch multinational banking and financial services corporation headquartered in Amsterdam, Netherlands. In business and economic reporting, “ING” typically refers to ING Bank’s economic research team, a key source of expert commentary on eurozone trends, ECB policy, and financial markets. “Lower inflation, rising real wages, and targeted fiscal support have helped sustain consumer spending even as credit conditions remain tight,” Brzeski added.
Germany, the region’s largest economy, expanded by 0.3 per cent after contracting in the previous quarter, helped by improved industrial output and higher car exports. France and Spain recorded quarterly growth of 0.4% and 0.6%, respectively, while Italy rebounded by 0.2% after two quarters of stagnation. Smaller economies, including Portugal and Ireland, also reported above-average gains.
Markets reacted positively to the news, with the euro strengthening modestly against the US dollar and European equities advancing in early trading. Bond yields across the bloc ticked up as investors scaled back expectations of near-term interest rate cuts.
The better-than-expected growth complicates the policy outlook for the European Central Bank (ECB), which has paused its rate-hiking cycle after bringing inflation down from a peak of 10.6% in late 2022 to just above 2.2% in September. Policymakers, including ECB President Christine Lagarde, have signalled that rates will remain at restrictive levels “for as long as necessary” to ensure price stability.
“The eurozone economy is showing the first signs of recovery, but it remains fragile,” Lagarde said at a press conference earlier this week. “The path ahead depends on maintaining wage discipline, improving competitiveness, and avoiding renewed supply shocks.”
Economists caution that the rebound remains uneven and exposed to geopolitical tensions, trade disruptions, and slower global demand, particularly from China and the United States. Fiscal consolidation efforts in several member states could also limit growth momentum heading into 2026.
Still, the European Commission is expected to revise its growth outlook upward in its upcoming winter forecast, citing easing inflationary pressures and a steady labour market. The unemployment rate across the eurozone remains at a record low of 6.4%, while real wages have begun to rise after nearly two years of contraction.
“Europe’s growth story is no longer about crisis avoidance — it’s about slow, steady normalisation,” said Holger Schmieding, chief economist at Berenberg Bank. “The key challenge now is to translate stability into productivity-driven expansion.”
As the global economy continues to adjust to post-pandemic and post-energy shock realities, the eurozone’s stronger-than-expected recovery offers policymakers a narrow but valuable window to consolidate gains without reigniting inflationary pressures.
