Euro zone economy slows to 0.4% growth in Q3 as crisis-hit France contracts

Economic expansion in the euro zone slowed to 0.4% in the third quarter, statistics agency Eurostat said on Friday.

The 21-nation euro area rebounded to 0.6% growth in the second quarter, following stagnation in the first three months of the year.

The flash third quarter reading was nonetheless higher than the 0.2% growth that was forecast in a Reuters poll of economists.

However, France's economy unexpectedly contracted by 0.1% over the July to September period. The country is grappling with soaring borrowing costs as investors balk at a political struggle to reduce its high budget deficit and mounting national debt. October has also brought growing nationwide unrest over the cost of living and other issues, which has at times escalated into violent and costly rioting .

Germany, the euro zone's largest economy, grew by just 0.2% in the third quarter. Growth in the bloc's third-biggest economy, Italy, was flat.

Spain — recently rocked by its own mass protest s over cost pressures and housing, leading to a snap election being called for next month — grew by 0.6%. The country continues to outpace the euro area average amid labor market productivity, a healthy tourism industry and domestic demand, and a relatively strong fiscal position.

Ireland recorded 5.5% growth, though its headline GDP figures are highly volatile and subject to revision due to the large number of multinationals stationed in the country but doing business outside of it.

The European Central Bank voted to hold interest rates steady on Thursday , saying a shock from higher energy prices was not yet feeding into second-round effects in the wider economy. But analysts said the ECB may still opt for one more rate hike in December as energy costs remain elevated.

The central bank also said that downside risks to growth had increased.

The euro area is "showing unexpected resilience against a backdrop of considerable economic and geopolitical uncertainty," Joe Nellis, head of economic research at accountancy MHA, said.

However, he cautioned that this may be masking longstanding structural challenges, including weak productivity growth and investment expenditure, demographic pressures and declining industrial competitiveness.