Economic Buzz: ECB says Euro area economy continued to expand, outlook is highly uncertain

European Central Bank or ECB stated in a latest monthly update that the incoming data suggest that the euro area economy continued to expand in the third quarter of the year. Services have recovered, after weakening at the start of the Middle East conflict. Manufacturing, digital services and exports are benefiting from business investment related to artificial intelligence (AI). Government spending on infrastructure and defence is also supporting activity. These factors should continue to underpin growth in the near term. At the same time, renewed energy price increases have hit consumer confidence, and higher financing costs are likely to weigh on growth.

ECB noted that the unemployment rate remained at 6.4% in August. Growth in employment and the labour force remains subdued, while productivity has gradually picked up. Over the medium term, a recovery in confidence and real incomes, driven by gradually declining energy prices and a robust labour market, should bolster domestic demand. Investment in AI-related activities and government spending on infrastructure and defence should also continue to support growth. Export growth should pick up on the back of strengthening foreign demand. The outlook is highly uncertain and remains conditional on the geopolitical situation as well as the functioning of energy markets.

Private consumption growth is expected to have lost momentum in the third quarter of 2026. Private consumption expanded by 0.4%, quarter on quarter, in the second quarter, driven by spending on services and durable goods (Chart 6). Spending on durable goods was supported mainly by purchases of electric and hybrid vehicles, which now account for around 70% of new car registrations, likely reflecting a shift away from vehicles exposed to high fuel prices.

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