The euro zone economy grew 0.4% in the third quarter from the previous three months, Eurostat said on Friday, a steadier showing than many feared after a summer of rising energy prices, though France slipped into contraction and Italy stalled.

For investors in Asia, the figure matters for two reasons. It strengthens the hand of European Central Bank policymakers who want to raise rates again in December, which would support the euro against the yen and the yuan. And it suggests European demand for imports, including goods made in Asia, has held up under the energy shock.

From a year earlier, output in the currency area rose 1.3%, up from 1.2% in the second quarter, according to the preliminary flash estimate. The wider European Union grew 0.5% on the quarter and 1.5% on the year. Second-quarter growth in the euro zone now stands at 0.6%, above the 0.4% in Eurostat's July flash estimate, making the spring stronger than first thought.

France and Italy Lag as Spain Keeps Growing

The headline hides a wide split among the big economies. France's gross domestic product fell 0.1% on the quarter and was 0.1% lower than a year before, the only member state with negative annual growth in the release. Italy was flat on the quarter, after 0.2% growth in the spring. Germany grew 0.2%, down from 0.4% in the first quarter and 0.3% in the second, while Spain and the Netherlands each grew 0.6%.

Ireland again distorted the aggregate. Its economy grew 5.5% on the quarter, according to an experimental estimate that Eurostat flagged as subject to revision. Irish figures swing on the accounting of multinational companies, many of them U.S. technology and pharmaceutical groups, and its 10.2% jump in the second quarter followed a 7.8% fall in the first. Lithuania shrank 1.0%.

The labor market is softening at the edges. Euro zone unemployment was 6.5% in September, up from 6.3% a year earlier, with about 11.55 million people out of work, Eunews reported, citing Eurostat data released the same day.

What It Means for the ECB in December

The ECB held its deposit rate at 2.5% on Oct. 29 but left a December hike in play. In its statement, the bank said incoming data pointed to continued expansion in the third quarter, with services recovering and AI-related business investment supporting manufacturing, digital services and exports. It also warned that renewed energy price increases had hit consumer confidence and that higher financing costs were likely to weigh on growth.

Friday's number broadly matched that description. Growth near 0.4% a quarter gives hawks less reason to worry that a hike would tip the bloc into recession, though the slowdown in France and Italy gives the doves an argument too.

Inflation is the bigger test. Eurostat's final September reading put annual euro zone inflation at 3.8%, up from 3.2% in August and 2.2% a year earlier. Energy contributed 1.71 percentage points of that figure and services 1.52 points, the statistics office said. Energy prices were 18.9% higher than a year earlier, and the ECB noted that underlying measures had stayed broadly stable. Core inflation, which excludes energy, food, alcohol and tobacco, was 2.5%, according to Eurostat.

ECB President Christine Lagarde said on Oct. 29 that, barring a major development, "the direction of travel is quite clear." The Governing Council will see the October and November inflation estimates, third-quarter GDP and wage data and new staff projections before it decides on Dec. 17.

The Read-Through for Asian Exporters

Europe is a large end market for Asian manufacturers, and the ECB has pointed to AI-related investment as a source of strength. Slides presented on Oct. 30 by ECB Executive Board member Philip R. Lane at a Federal Reserve Bank of San Francisco conference tracked imports and exports of AI-related goods, such as data center equipment, separately from the rest of trade. They compared import growth in the U.S., China and the rest of the world, and the euro zone's AI-related exports with those of the rest of the world.

That investment is a direct channel for chipmakers and server suppliers in Taiwan, South Korea and Southeast Asia. The ECB said it expects export growth to pick up as foreign demand strengthens, and that infrastructure and defense spending by governments should continue to support activity.

The risks run the other way for consumer goods. Energy costs are eroding household purchasing power, and the ECB said confidence had been hit. Exporters of cars, electronics and apparel to Europe face softer demand if the energy shock persists, and a December hike would tighten credit further.

A stronger euro would cushion some of that by raising the value of European orders when converted into Asian currencies.

Eurostat publishes its flash estimate of October inflation on Wednesday, Nov. 4. The full October inflation release, with country detail, is due Nov. 18, a month before the ECB decides.