Euro Zone Business Growth Hits 3.5-Year High Amid Inflation Fears
The euro zone's business activity surged to its highest level in nearly three and a half years in September, defying concerns over inflation fueled by the Middle East war. A private survey revealed that demand remained robust despite rising energy costs, which pushed inflation up to 3.8% in September from 3.2% in August. This unexpected jump in inflation has raised speculation that the European Central Bank (ECB) may increase interest rates more aggressively than 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 earlier estimates. The composite index, which combines services and manufacturing, reached 53.1, its highest since April 2023, marking the strongest quarterly performance since the second quarter of 2022. A reading above 50.0 indicates economic growth.
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that the PMI surveys suggest GDP growth at a 0.4% quarterly rate, with momentum accelerating into the fourth quarter. Spain led the growth, followed by Ireland, while Germany's recovery gained pace. Italy and France saw modest growth. IT-related services, boosted by AI investments, were particularly strong.
The survey also highlighted intensifying inflation pressures, with both input and output prices rising at their fastest pace in four months. Williamson cautioned that this uptick in price pressures could push euro zone inflation closer to 4%, well above the ECB's 2% target. Markets are currently anticipating more than two ECB rate hikes by mid-next year.