Euro Zone Business Activity Contracts Amid Eased Inflation

Euro zone business activity contracted last month, although the decline was milder than expected. The HCOB composite PMI dropped below 50, signalling contraction. Inflation eased, with rates falling to 1.8%, below the ECB's target, suggesting potential for further interest rate cuts.

The euro zone's business activity contracted in September, according to a recent survey, though the downturn was less severe than initially anticipated. HCOB's composite PMI, considered a reliable indicator of economic vitality in the euro zone, fell from 51.0 in August to 49.6, the first reading below 50 since February.

This reading, while below the growth-threshold, was better than a preliminary forecast of 48.9. The service sector, a key driver in the euro zone, saw its PMI drop from 52.9 to 51.4, slightly above an earlier flash reading of 50.5, suggesting the sector is still growing modestly.

Meanwhile, inflation in the euro area dropped to 1.8% in September, under the European Central Bank's 2% target. This decrease reinforces expectations of another interest rate cut in the near future. Nevertheless, demand for services showed signs of weakening as the new business index slid to 49.7, marking an eight-month low.

(With inputs from agencies.)