Eurozone Growth Beats Forecasts as Inflation and Energy Risks Rise

The eurozone economy is growing faster than forecast, but risks are mounting

The eurozone economy grew by 0.4 per cent in the third quarter of 2026 compared with the previous quarter, exceeding analysts’ forecasts, which had predicted a 0.2 per cent increase in GDP.

Photo: DW

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However, accelerating inflation, rising energy costs and higher government bond yields are creating new risks for economic growth and the European Central Bank’s (ECB) monetary policy, according to Reuters.

The publication bases its assessments on preliminary Eurostat data published on 30 October. The statistics agency states that, compared with the third quarter of last year, eurozone GDP rose by 1.3 per cent, whilst analysts had expected growth of 1.1 per cent.

Investment is supporting the economy

Despite energy and geopolitical risks, the eurozone economy remains resilient. In the previous quarter, April–June, growth stood at 0.6 per cent; therefore, the July–September result indicates a moderate slowdown, but not a sharp deterioration in the situation.

Among the supporting factors, Reuters highlights investment in artificial intelligence, the defence industry and infrastructure. Robust external demand provides further support for industry, whilst consumer spending remains relatively high.

However, performance varies significantly between individual countries. In the third quarter, the German economy grew by 0.2 per cent, whilst Spain and the Netherlands both grew by 0.6 per cent. In Italy, quarterly growth stalled, and France’s GDP contracted by 0.1 per cent.

The eurozone figure as a whole was also influenced by Ireland’s performance, where the economy grew by 5.5 per cent over the quarter. The significant proportion of multinational corporations operating in the country makes Ireland’s GDP figures particularly volatile.

Inflation and borrowing costs threaten growth

The positive statistics do not yet dispel doubts about the economy’s future trajectory. Europe is dependent on energy imports, so rising oil and gas prices increase businesses’ costs, reduce their profit margins and lower households’ purchasing power.

Rising borrowing costs are adding to the pressure. Yields on German government bonds, which serve as a benchmark for the eurozone market, rose in October to their highest levels in several decades. At the same time, risk premiums on bonds from other countries, particularly France, increased amid investor concerns about the state of public finances.

Inflationary risks are also mounting. According to Reuters estimates, accelerating price rises in the currency bloc’s largest economies could push headline inflation in the eurozone up to 3.9 per cent or higher – well above the ECB’s 2 per cent target.

Against this backdrop, market participants are increasingly considering the possibility of a further ECB interest rate rise as early as December. Such a move could curb inflationary pressures, but would simultaneously increase the cost of borrowing for businesses and households.

The labour market is so far keeping inflationary pressures in check

According to Reuters, unemployment in the eurozone remained at 6.5% in August. However, for most of the previous year, the figure had been rising gradually, moving away from the record low of 6.2% recorded at the end of 2024.

The relatively weak labour market is currently limiting the risk that rising prices will quickly lead to further wage increases and a further acceleration in inflation.

Nevertheless, an ECB survey published on 30 October showed a rise in inflation expectations. According to the data presented, it may take until 2028 for inflation to return to the target level.

What this means for the European economy

Third-quarter results show that the eurozone economy is so far weathering the pressure from high energy costs and geopolitical uncertainty better than previously expected. Investment, external demand and consumption are supporting business activity.

However, outperforming forecasts does not mean that the risks have passed. If energy prices continue to rise and borrowing becomes more expensive, it will be more difficult for businesses to expand their investment and for households to sustain their consumption.

For businesses, this means having to take into account two opposing factors simultaneously: sustained demand in certain segments of the economy and a possible tightening of financial conditions. Future developments will depend on inflation, energy prices, the ECB’s decisions and the ability of consumers and businesses to maintain their spending.

Eurostat emphasises that the published GDP estimate is provisional and may be revised. The next estimate for the third quarter is scheduled for 13 November 2026.

This story was translated with the assistance of artificial intelligence.The translation was also reviewed by the Logos Press editorial team.

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