Unexpected Resilience In A Volatile Economic Climate

Europe’s economy is showing surprising signs of durability, even as wars in the Middle East and Ukraine continue to put upward pressure on energy costs for businesses and households, according to new business surveys released on Wednesday.

Across the euro zone, private-sector activity accelerated in September at its fastest pace in more than three years, S&P Global reported, with both manufacturing and services contributing to the improvement.

Follow THE FUTURE on LinkedIn, Facebook, Instagram, X and Telegram

The S&P Global Flash Euro Zone Composite PMI Output Index, a closely watched measure where readings above 50.0 indicate expansion, climbed to 53.1 in September from 52.0 in August. That comfortably beat a Reuters poll forecast of 51.7 and exceeded the highest estimate in the survey, 52.6.

Broad-Based Growth Across The Bloc

“All in all, today’s PMI readings are almost too good to be true,” said Carsten Brzeski of ING. “A euro zone economy that remains completely unharmed by an energy price shock and supply chain disruptions is a welcome surprise. Let’s hope it doesn’t turn out to be a mirage.”

S&P said the latest improvement was broad-based across the countries covered by its survey data.

Germany, the bloc’s largest economy, posted solid expansion in September despite rising inflationary pressures, while France recorded its strongest growth in just over two years, helped by a rebound in services demand.

By contrast, Britain, which is outside the European Union, saw growth cool this month as inflationary pressures intensified. The data add to the pressure on finance minister John Healey ahead of his first budget next month.

New Orders And Hiring Point To Continued Momentum

Across the currency union, new orders rose at their fastest pace in more than four years, supported by stronger exports, including trade within the euro zone itself.

The services PMI climbed to its highest level in nearly a year and comfortably surpassed expectations for a decline, while the manufacturing index held steady. The output gauge, which feeds into the composite PMI, also edged higher.

To meet stronger demand, firms added staff. At the same time, they faced rising input costs as elevated energy prices filtered through the economy amid the conflict involving the United States and Iran. Many businesses passed at least some of those costs on to customers.

“September’s big improvement in the euro zone’s composite PMI supports our view that despite the weakness in the official activity data in July, GDP will increase in Q3,” said Jack Allen-Reynolds of Capital Economics. “The output price PMIs rose too, but there is still no sign of ‘second-round’ effects on wages.”

Pressure Builds On The European Central Bank

Earlier this month, the European Central Bank raised interest rates for the second time this year in an effort to contain energy-driven inflation and warned that price pressures could prove persistent.

Markets are now pricing in three additional ECB rate hikes by the end of June 2027.

“Today’s PMI readings make it more difficult for even the ECB’s most dovish policymakers to rule out another rate hike,” Brzeski said.