Eurozone Economy Defies Iran War Chaos with Fastest Growth in Three Years

The Eurozone economy has defied expectations and shown surprising resilience to the economic chaos sparked by the Iran war. Preliminary data published on Wednesday shows that business activity in the 21-country area expanded at its fastest pace in three and a half years.

The euro area's provisional composite Purchasing Managers' Index (PMI) rose from 52.0 to 53.1 between August and September, pushing the index to its highest level since April 2023. This uptick was widespread, with services and manufacturing activity surging to a 10-month and 55-month high, respectively.

Germany, the EU's largest economy, expanded at its fastest pace in nearly a year, while France, the bloc's second-largest economy, recorded its strongest performance since August 2024. The resilience of economic growth being reported is 'almost too good to be true', according to Carsten Brzeski, global head of macro at ING Research.

Analysts believe that inflationary pressures and the eurozone's general resilience bolster the likelihood that the European Central Bank will hike interest rates later this year. The expansion in business activity and recent surge in prices 'put an October hike very much on the table', said Chris Williamson, chief business economist at S&P Global Market Intelligence.