Eurozone Business Growth Hits 41-Month High in September as Services and Manufacturing Strengthen
Eurozone business activity accelerated sharply in September, reaching its strongest level in more than three years as both services and manufacturing showed renewed momentum.
The S&P Global Flash Eurozone Composite PMI rose to 53.1 in September from 52.0 in August, marking its highest reading since April 2023 and a 41-month high. The result also exceeded expectations: a Reuters poll had forecast the index would ease to 51.7. A reading above 50 indicates that private-sector activity is expanding.
The improvement is significant because Europe's economy is dealing with higher energy costs, geopolitical uncertainty and renewed inflation pressure. The September data suggest that businesses have so far remained more resilient than expected.
However, the report also contains a complication for investors: prices are rising faster again, potentially making the European Central Bank's interest-rate decisions more difficult.
Services lead the Eurozone recovery
The services sector provided the biggest boost to overall growth.
The Eurozone Services Business Activity Index climbed to 53.0 in September from 51.6 in August, its highest reading in 10 months. That indicates a clear acceleration in activity across the region's large services economy.
Services are particularly important for the eurozone because the sector represents a large share of economic activity and employment.
The September improvement therefore suggests that domestic economic activity is holding up despite the pressure created by higher energy costs.
New business also improved. Overall new orders increased for a third consecutive month and at their fastest pace since May 2022, while export orders increased for a second consecutive month after more than four years of decline.
That combination points to improving demand rather than growth being driven solely by temporary factors.
Manufacturing output reaches a 55-month high
Manufacturing also contributed to the stronger picture.
The headline Eurozone Manufacturing PMI remained at 52.7, unchanged from August. However, the more specific manufacturing output index increased to 53.4 from 53.3, reaching its highest level in 55 months.
The distinction matters.
The headline manufacturing PMI includes several components, including orders, employment and other business conditions. The output index specifically tracks factory production.
Therefore, even though the headline PMI was unchanged, actual manufacturing output continued to improve.
For European industrial companies, that could provide an important sign that the manufacturing downturn that affected parts of the region over recent years is gradually losing momentum.
Germany and France both improve
The recovery was not limited to one major economy.
Germany's composite PMI jumped to 53.8 from 51.8, reaching an 11-month high. Services returned to expansion, with the German services PMI rising to 52.9 from 49.7. Manufacturing remained in expansion, although its headline PMI eased to 53.8 from 54.3.
France also delivered a significant improvement.
Its composite PMI rose to 51.2 from 48.5, returning to expansion for the first time in 10 months. The services PMI climbed to 51.4 from 48.0, while manufacturing eased to 50.3 from 51.1.
The broader geographic improvement is important because Germany and France together account for a substantial portion of the eurozone economy.
A recovery across both economies gives the September PMI more weight than a rebound concentrated in a single country.
Stronger growth comes with an inflation problem
The biggest concern in the report is that stronger economic activity is being accompanied by renewed price pressure.
Input costs and selling prices increased at their fastest rates in four months, according to the survey. The acceleration was visible across manufacturing and services as well as Germany, France and the rest of the eurozone.
Higher energy prices linked to the ongoing Middle East conflict are an important factor.
Europe has faced a sharp increase in energy costs during the conflict, and the European Central Bank has warned that rising gas prices can feed through to consumer inflation more quickly than in the past.
That creates a difficult policy combination.
Normally, stronger economic activity is positive for companies and investors. But if stronger demand comes alongside rising prices, the ECB has less room to ease monetary policy.
Could the ECB face renewed rate pressure?
The PMI data could therefore influence expectations for European interest rates.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the survey was consistent with quarterly GDP growth of around 0.4%. He also indicated that the combination of resilient growth and rising price pressures could strengthen the case for another ECB rate increase before the end of the year.
That is an important potential consequence for financial markets.
Higher interest rates generally increase borrowing costs for businesses and consumers. They can also put pressure on equity valuations because future corporate cash flows are discounted at higher rates.
At the same time, stronger economic growth can support company earnings.
This creates a more complicated investment environment than simply saying that a stronger PMI is bullish for European stocks.
Why the PMI matters for investors
The Purchasing Managers' Index, or PMI, is closely watched because it provides an early indication of economic activity before official GDP figures are released.
A reading above 50 means activity is expanding, while a reading below 50 indicates contraction.
The September composite reading of 53.1 therefore suggests that the private sector is expanding at a meaningful pace.
For investors, several areas could benefit if the improvement proves durable.
European industrial companies could gain from stronger manufacturing demand and improving order books.
Banks could benefit from stronger economic activity, although higher rates can also increase credit risks.
Consumer companies may benefit if stronger employment and income conditions support spending.
European exporters could gain from improving external demand, particularly if export orders continue recovering.
However, higher energy costs remain a risk across many industries.
The energy shock remains a key risk
The PMI results should not be interpreted as evidence that Europe's economic risks have disappeared.
The ongoing Middle East conflict remains capable of affecting oil and gas prices, shipping routes and business costs. The ECB recently noted that wholesale European gas prices had risen sharply because of global supply constraints connected with the conflict and low storage levels.
If energy prices remain elevated for an extended period, businesses could face increasing input costs.
Companies may attempt to pass those costs on to customers, but that could weaken demand and push inflation higher at the same time.
This is one of the main risks to the recovery: stronger activity could be undermined if the energy shock becomes persistent.
Germany's improving outlook adds another positive signal
The September PMI comes alongside signs that expectations for Germany's economy have improved.
Germany's leading economic institutes have reportedly raised their forecasts for economic growth to 1.3% in 2026 and 1.1% in 2027, up from previous estimates of 0.6% and 0.9%, respectively.
The upgrade reflects better-than-expected performance during the first half of the year.
However, structural challenges remain, meaning stronger near-term activity does not necessarily eliminate longer-term competitiveness issues facing Europe's largest economy.
The PMI therefore provides evidence of improving momentum, rather than proof that Europe's broader structural problems have been resolved.
What investors should watch next
The next few months will determine whether September's acceleration represents a durable improvement or a temporary rebound.
Investors should monitor:
October and November PMI readings for confirmation that growth remains above 50.
Services inflation and input costs, which will influence the ECB's policy decisions.
Energy prices, particularly natural gas and crude oil.
New orders and export orders, which provide clues about future production.
Germany's manufacturing activity, given its importance to the eurozone industrial cycle.
ECB communication, particularly any changes in its assessment of inflation risks.
The relationship between growth and inflation will be particularly important.
If economic activity stays strong while price pressures moderate, the environment could become more supportive for European businesses. If both growth and inflation accelerate, investors may instead have to adjust to a higher-for-longer interest-rate environment.
Bottom line
Eurozone business growth accelerated sharply in September, with the composite PMI reaching 53.1, a 41-month high. Services activity rose to a 10-month high, while manufacturing output reached its strongest level in nearly five years. Germany accelerated and France returned to expansion.
The encouraging growth data, however, came alongside faster increases in input costs and selling prices.
For investors, the key issue is therefore not simply whether Europe's economy is recovering. It is whether that recovery can continue without allowing renewed energy and inflation pressures to force the ECB toward tighter monetary policy.
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This article is for informational and educational purposes only and should not be considered investment advice.