Eurozone Business Activity Surges to 41-Month High Amid Rising Inflation

The euro area's private-sector output reached its highest level in over three years in September, signaling robust economic growth despite rising inflation concerns. The S&P Global Eurozone Composite PMI rose to 53.1 from 52.0 in August, the strongest reading since April 2023, indicating expansion across the bloc. The services PMI hit a 10-month high of 53.0, while manufacturing also gained momentum. Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that GDP growth could reach about 0.4% quarterly, with IT-related services and AI investments driving much of the expansion.

Spain led the growth, followed by Ireland, with Germany also showing strong recovery. Italy and France posted more modest gains, marking the first time since November that all five economies in the survey grew simultaneously. Demand across the bloc strengthened, with new orders rising at their fastest pace in 41 months, driven by factory orders and foreign demand. Export orders, which had been declining for 39 months, finally halted their contraction.

Employment saw a slight increase for the second straight month, though services hiring slowed. Business confidence remained steady, with manufacturing optimism reaching a seven-month high. However, inflation pressures intensified, with input costs and selling prices rising at their fastest pace in four months. Williamson suggested that euro-area inflation could be closer to 4% than the European Central Bank's 2% target, potentially spurring more aggressive monetary policy tightening.

Spain's services PMI hit 58.3, matching the joint-fastest pace in three and a half years, while Germany's services PMI rose to 52.9, returning to growth for the first time since February. The composite euro-area reading of 53.1 indicates strong economic expansion, complicating the ECB's policy decisions as it balances growth with inflation near 4%.