Italy’s economy stagnated in the third quarter — just dodging a recession as Prime Minister Giorgia Meloni battles to keep output expanding while also limiting debt.

Gross domestic product was unchanged from the previous three months, data Tuesday showed. That follows a 0.4% contraction in the second quarter and is less than the 0.1% growth estimated by analysts in a Bloomberg poll.

The economy was helped by net exports, though domestic demand acted as a drag, national statistics institute Istat said in a statement.

The outcome puts Meloni in a difficult spot as she struggles to invest in the economy while also keeping Italy’s mammoth debt in check. It underscores how rising interest rates and weaker global exports are weighing on the euro zone’s No. 3 economy. The Bank of Italy sees 2023 GDP up by just 0.7%.

“In the years to come we will need, as the government recognizes, further efforts both on fiscal policy and on interventions to boost growth potential,” Bank of Italy Governor Ignazio Visco said at an event in Rome.

He also noted “downside risks” for the economy, “particularly in light of geopolitical tensions and the rigidity of financing conditions.”

The news is part of a mixed picture across the continent. France saw slight growth in the third quarter, while Germany shrank by 0.1%. Figures for the 20-nation euro area showed an unexpected contraction as well.

What Bloomberg Economics Says...

“While a technical recession has been avoided, the economic momentum is weak as higher borrowing costs bite and external demand is waning. Italy is also no longer benefiting from temporary fiscal incentives that were the main driver of growth in the past two years. With the country’s debt burden in focus, it remains vulnerable to risks of a sudden tightening of financial conditions.”

—Simona Delle Chiaie, economist. Click here for full REACT

Inflation numbers are providing some solace. Italian consumer-price growth plunged to 1.9% in October from a year earlier. That’s better than economists had anticipated and compares with a reading of 5.6% for September.

Italy’s recent budget law, which envisages a wider deficit due to tax cuts and spending to help low-income families, has unnerved investors, pushing the spread between Italian and German 10-year bonds to 192 basis points.

--With assistance from Joel Rinneby and Giovanni Salzano.

(Updates with Bank of Italy chief comments starting in fifth paragraph.)