— By Eric Culp — 

The euro area economy expanded more than expected last quarter, but the growth was below the rate in the previous three months as the effects of the Iran war continue to impact Europe.

GDP in the Eurozone increased 0.4% in the July–September period, according to the EU statistics office Eurostat. The latest number was double the rate expected by economists but fell short of the 0.6% improvement in Q2, a jump that came after Ireland reported a 10.2% surge in GDP. The country was also largely responsible for the latest result with a Q3 upswing of 5.5%. One economist said that excluding Ireland, growth in the single currency area was only 0.2%.

Looking at the annual rate, the Eurozone economy expanded 1.3% in Q3 versus 1.2% in Q2.

Germany reported a quarterly rise of 0.2%, a tenth of a percentage point below the 0.3% in April–June. French GDP fell unexpectedly, contracting 0.1% after a flat Q2. In Italy, the economy treaded water with 0% growth after a 0.2% rise in the previous period. Spain’s expansion remained at the 4.9% rate reported in Q2.

The Iran war has driven the costs of some fuels and energy to multi-year highs, which is bad news for almost everyone. “With energy prices still rising steadily, including gas prices, the winter months will see an additional growth challenge, noted Bert Colijn at ING Bank. “On top of that, interest rates are now higher and businesses indicate less appetite for borrowing as a consequence.”

The European Central Bank left its key interest rates unchanged on Thursday, but at the same time indicated that it will likely hike at this year’s last decision meeting in December. An increase, designed to slow inflation that hit 3.8% in September, could also brake economic activity: raising borrowing generally reduces corporate and private spending.