Ireland’s economy drives faster-than-expected euro zone growth

Ireland’s fast-growing economy helped the euro zone grow more rapidly than anticipated in the third quarter, the latest Eurostat figures showed.

The Irish economy grew at an accelerated rate of 5.5 per cent in gross domestic product (GDP) terms between July and September on the back of an expansion in multinational exports.

This boosted growth for the euro zone as a whole to 0.4 per cent, above economists’s expectations for 0.2 per cent growth. Compared to a year earlier, the euro zone economy expanded by 1.3 per cent.

Although the figures suggest the euro zone economy was proving resilient in the face of the current inflation shock, it was recognised that the Irish numbers had skewed the picture somewhat.

“Particular care must be taken when interpreting” the Irish estimate, Eurostat said.

Among the euro zone’s biggest economies, Germany expanded by 0.2 per cent ​in the quarter, Spain and the Netherlands by 0.6 per cent, while Italy was unchanged and the French economy contracted by 0.1 per cent.

Although ⁠the bloc’s growth rate is less than half of that in the United ‌States, ‌the ​figure still far exceeds gloomy projections made after the start of the Iran war earlier in the year.

Europe is a net energy importer and oil ⁠price surges immediately reduce growth, compress corporate ​margins and worsen the bloc’s terms of trade.

But the ​euro zone has been a surprise outperformer amid the uncertainty as heavy spending on AI, defence and ‌infrastructure boosted investment, robust foreign demand helped ​industry and households kept on spending, reducing their high savings rate.

This has led to a string ⁠of growth upgrades throughout the year. Most ⁠forecasters now see ​expansion above 1 per cent this year and an acceleration in 2027.

But while the euro zone has been resilient this year, some, including the European Central Bank, fear that its luck could soon ‌run out. Borrowing costs have ⁠increased sharply across the globe in the past two months and this will slow economic growth both at home and abroad.

In addition, a renewed surge in energy costs will ‌dampen output. Even household optimism may evaporate given a jump in natural gas costs to their highest levels ​since the start of Russia’s war in Ukraine in early 2022.

This fresh ​energy price jump is likely to force the ECB to raise interest rates again, possibly as soon as December, slowing growth even further. – Additional reporting by Reuters