Eurozone preliminary business activity data released on Wednesday showed a marked expansion, with the composite PMI rising to 53.1 in September from 52.0 in August—a gain that marked the fastest pace in three and a half years. The figures, compiled by S&P Global Market Intelligence, underscored resilience in an economy grappling with geopolitical shocks, including escalations in the Iran conflict and rising energy costs. Services sector activity reached a 10-month high, while manufacturing activity hit a 55-month peak, with Germany expanding at its fastest rate in nearly a year and France achieving its strongest performance since August 2024. The data prompted analysts to revisit the possibility of further monetary tightening by the European Central Bank (ECB).
The ECB raised its inflation outlook for 2027 from 2.3% to 2.5%, a shift that followed a September rate hike of 25 basis points, bringing its key policy rate to 2.50%. Analysts noted that while inflationary pressures—driven by rising input and output prices—had surged to their highest levels since May, the broader economic momentum remained robust. Chris Williamson, chief business economist at S&P Global Market Intelligence, observed that the data suggested a “momentum” in the final quarter of the year, though job market conditions remained subdued. He highlighted that the combination of strong business activity and price increases made an October rate hike “very much on the table.”
Carsten Brzeski, global head of macro at ING Research, described the figures as “almost too good to be true,” emphasizing the economy’s surprising resilience despite multiple headwinds. Rising oil prices, geopolitical disruptions, and elevated interest rates had typically been expected to dampen growth, yet the data suggested a sustained expansion. Brzeski cautioned that such a strong performance could complicate the ECB’s policy stance, potentially making another rate increase more likely. He added that while the resilience was welcome, the sustainability of this trend remained uncertain.
The preliminary figures reflect a broader trend of economic adaptation amid persistent external pressures. The ECB’s inflation outlook adjustment underscores the need for continued vigilance, as policymakers weigh the risks of sustained price pressures against the potential for further growth momentum. Investors will now focus on whether the current momentum can be sustained, particularly as the Middle East conflict and energy markets remain volatile.
