The euro area economy expanded 0.4% quarter-on-quarter in the third quarter, according to the second estimate of gross domestic product, unchanged from the preliminary reading and down from 0.6% growth recorded in the previous quarter. Year-on-year, GDP rose 1.3%, matching the preliminary estimate and up from 1.2% in the prior period.

There were no revisions to the initial figures — notable, since second estimates are compiled from fuller source data than the preliminary release — confirming that the eurozone economy held up in the third quarter. Expectations ahead of the first release had pointed to quarterly growth of just 0.2%, so the second estimate reaffirms the upside surprise published two weeks earlier.

The relative resilience in the headline number, however, comes with a caveat.

Ireland was the standout performer, posting a 5.5% quarterly expansion in the third quarter. The growth was driven primarily by strong activity in multinational-dominated industries, specifically information and communication and manufacturing. Still, Ireland's GDP figures have been notoriously volatile over the past year, a factor that always warrants some caution.

More broadly, Ireland's headline growth number is often a distorted gauge of domestic economic health. It is heavily influenced by contract manufacturing and the global profits of multinational corporations, which largely flow back to foreign shareholders rather than translating directly into local living standards.

Among the region's larger economies, the picture was far weaker. Germany managed growth of just 0.2%, Italy stagnated at 0.0%, and France contracted by 0.1%, underlining the limited breadth of the recovery across the eurozone's biggest economies. Because Germany, France and Italy are the euro area's three largest economies, their combined weakness carries outsized weight in the region-wide figure.

The GDP figures came alongside inflation data from France and Spain published the same day, which are doing little to dissuade the European Central Bank (ECB) from raising interest rates again next month.

For now, the euro area economy is still holding up, but the overall growth picture remains uneven. The key question is whether the broader economy can sustain that momentum in the fourth quarter and into next year. Otherwise, the ECB will be confronted with a difficult backdrop of weakening growth and higher inflation at the same time.

Source: InvestingLive