Key facts
- Euro zone business activity expanded at its fastest pace in nearly 3-1/2 years in September.
- The composite PMI for the Euro zone rose to 53.1, its highest level since April 2023.
- France's services sector returned to growth in September with a PMI of 51.2.
- Services firms saw their fastest growth in new business in 41 months.
- Export orders for services broke a 39-month streak of contraction.
- Input and output prices in the services sector rose at their fastest pace in four months.
Euro zone business activity expanded at its fastest pace in nearly 3-1/2 years in September, driven by strong demand and IT-related services, according to a survey by S&P Global. The composite Purchasing Managers' Index (PMI) for the bloc rose to 53.1, its highest level since April 2023, indicating robust growth.
Despite concerns over inflation stemming from the Middle East war and rising bond yields, the economic expansion continued. Inflation in the bloc jumped to 3.8% in September from 3.2% in August due to soaring energy costs, increasing the likelihood of further interest rate hikes by the European Central Bank. Markets are currently pricing in more than two ECB rate hikes by mid-next year.
Services firms reported faster growth in new business, with export orders breaking a 39-month streak of contraction. Overall new orders grew at their fastest pace in 41 months, and foreign demand was particularly strong. However, slower hiring in services offset a modest pickup in factory job creation, leading to weaker overall employment growth.
Spain was the strongest performer among euro zone countries, followed by Ireland, while Germany's recovery accelerated. Italy and France recorded modest growth, with France's services sector returning to growth in September for the first time since December, with its PMI at 51.2. The survey also indicated intensifying inflation pressures, with both input and output prices rising at their fastest pace in four months, suggesting inflation could run closer to 4% than the ECB's 2% target.