Euro Zone Business Activity Hits 16-Month High Amid Growth Concerns

Euro zone business activity surged to a 16-month peak in September, but a stagnation in new orders raises concerns about future growth sustainability. The services sector led the expansion, yet manufacturing dipped into contraction. Inflationary pressures slightly eased, though services costs remain elevated.

In September, the euro zone's business activity reached its fastest pace in 16 months, albeit with stagnating new orders after a brief August expansion, as reported by S&P Global's HCOB Flash Eurozone Composite Purchasing Managers' Index. The index modestly climbed to 51.2 from August's 51.0, marking continuous growth for nine months.

While services fueled the aggregate growth with a PMI increment from 50.5 to 51.4—the sector's highest in nine months—manufacturing faced a setback, declining into contraction with an index fall to 49.5. In a stark contrast between major economies, Germany exhibited significant growth, whereas France experienced a prolonged downturn.

Despite easing inflation pressures, particularly in manufacturing input costs, the services sector remained costly. This dovetails with the European Central Bank's vigil over service sector inflation, which, although slightly diminished, persists in its elevated state. The ECB has kept interest rates steady after the recent survey adjustment.