Europe’s Economy Shrugs Off Iran War Energy Shock, Grows in Q3

FRANKFURT – The eurozone economy maintained moderate momentum in the third quarter, with gross domestic product rising 0.4% from the previous quarter despite higher oil prices linked to the U.S.-Iran war.

The increase across the 21 European Union countries that use the euro exceeded the 0.2% growth forecast by market analysts. Eurostat, the EU statistics agency, said the economy expanded 1.3% compared with the same period a year earlier during the July-September quarter.

The continued expansion suggests 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.

However, economists have identified “worrying signs” that elevated oil costs are spreading across other parts of the economy. These so-called second-round effects occur when higher energy prices begin pushing up wages and prices more broadly, potentially strengthening the case for higher interest rates from the European Central Bank.

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Inflation stands at 3.8%, well above the ECB’s 2% target. The central bank kept interest rates unchanged at its policy meeting Thursday, but it could raise them at its next meeting in December to bring inflation under control. Such a move would increase borrowing costs even as economic growth remains modest and uneven across member countries.

Germany, the eurozone’s largest economy, grew 0.2% despite pressure from high energy prices and low river levels that disrupted trade. France contracted 0.1%, with a political deadlock over how to tackle its outsized budget deficit continuing to undermine business confidence. Spain, the Netherlands and Estonia posted stronger growth of 0.6%.

The eurozone’s headline growth rate was boosted by Ireland’s 5.5% expansion. Irish data can be volatile because the country hosts multinational technology and pharmaceutical companies whose global operations can significantly affect national economic figures. Excluding Ireland, eurozone growth was 0.2%.