Eurozone growth hits 0.4% in Q3 as war-driven oil costs fail to stall spending

European consumers and companies kept spending in the third quarter, allowing the bloc's economy to grow even as the war between the United States and Iran pushed oil prices higher. Gross domestic product for the 21 countries using the euro rose by 0.4% from the previous quarter, according to data released Friday by the European Union statistics agency Eurostat.

The result beat market expectations, which had forecast a 0.2% increase. On an annual basis, the eurozone economy expanded by 1.3% from July through September. Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said households and businesses have not pared back their spending due to the Iran war.

Paolo Grignani, a senior economist at Oxford Economics, noted that the economy remains resilient amid geopolitical turmoil and a worsening inflationary environment. However, he pointed to worrying signs that high oil prices are spreading to other sectors. These second-round effects, where energy costs influence wages and prices throughout the economy, would support higher interest rates from the European Central Bank.

Inflation stood at 3.8%, well above the central bank's 2% target. The ECB left borrowing costs unchanged at its policy meeting on Thursday. A rate increase could occur at the next meeting in December, which would impose higher borrowing costs on an economy where growth is modest and unevenly distributed.

Performance varied across member states. Germany, the largest economy in the zone, grew by 0.2% despite high energy prices and low river levels that disrupted commerce. France shrank by 0.1% as a political deadlock over an outsized budget deficit continued to weigh on business confidence. Spain, the Netherlands, and Estonia performed more strongly, each posting 0.6% growth.

The headline growth figure was skewed by a 5.5% surge in Ireland. Eurostat attributes this volatility to multinational tech and pharmaceutical companies headquartered there, whose global activities can influence national figures. Excluding Ireland, the rest of the eurozone grew by 0.2%.