Euro Zone Business Growth Hits 3-1/2-Year High Amid Inflation Concerns
The euro zone's business growth reached its highest level in over three and a half years, despite rising inflation concerns, according to the latest PMI data. Inflation in the bloc surged to 3.8% last month from 3.2% in August, driven by soaring energy costs, raising expectations that the European Central Bank (ECB) may raise interest rates more aggressively than previously anticipated.
The S&P Global Eurozone Services PMI climbed to a 10-month high of 53.0 in September, up from 51.6 in August, aligning with preliminary estimates. The composite index, which combines services and manufacturing, increased to 53.1 from 52.0 in August, marking the highest level since April 2023 and the strongest quarterly performance since the second quarter of 2022. A reading above 50.0 indicates growth.
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that the PMI surveys suggest the euro zone's GDP is growing at a 0.4% quarterly rate, with momentum accelerating into the fourth quarter. IT-related services, boosted by AI investments and supported by professional and commercial services, are showing particularly strong growth. Spain led the performance, followed by Ireland, while Germany's recovery accelerated to one of its strongest rates since early 2022. Italy and France recorded modest growth.
Services firms reported faster growth in new business, with export orders breaking a 39-month streak of contraction. Factory orders rose at their fastest pace since early 2022, leading to the quickest growth in overall new orders in 41 months. Foreign demand was particularly strong, with overseas orders rising at the quickest rate in more than four and a half years. However, a slowdown in services hiring offset a modest pickup in factory job creation, resulting in weaker overall employment growth. Business confidence remained steady.
The survey also indicated intensifying inflation pressures, with both input and output prices rising at their fastest pace in four months. Williamson suggested that the survey hints at euro zone inflation running closer to 4% than the ECB's 2% target. This data is likely to fuel speculation of more aggressive monetary policy tightening, with markets currently pricing in more than two ECB rate hikes by mid-next year.