Eurozone economy gains momentum as services accelerate

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Eurozone growth strengthens

Highlights

Eurozone composite PMI rose to 53.1 in September.
Germany and France both performed better than expected.
Stronger activity may reinforce the case for higher ECB rates.

The S&P Global Composite Purchasing Managers Index rose to 53.1 from 52.0 in August, according to data reported by Bloomberg. Economists had expected the index to slip to 51.7. A reading above 50 signals expansion, making the September increase a clear acceleration rather than simply another month of modest growth.

Germany and France beat expectations

The improvement was spread across the eurozone’s largest economies. German private-sector activity expanded at its fastest pace since October 2025, helped by manufacturing, while France unexpectedly recorded its strongest expansion in more than two years.

Manufacturing has benefited from increased spending on artificial intelligence and defense, particularly in Germany. Services also gathered momentum, broadening a recovery that had previously depended more heavily on industrial activity. New orders improved across both manufacturing and services, pointing to continued momentum heading into the fourth quarter.

Demand for batteries and industrial investment has helped the economy withstand the Middle East conflict and the accompanying increase in commodity prices. The ECB said this month that the eurozone had proved more resilient than expected and raised its 2026 growth projection to 0.9%.

Stronger growth meets higher inflation

The recovery comes with a policy complication. Higher energy prices are feeding back into inflation at the same time that business activity is strengthening, reducing the urgency for the ECB to protect growth with easier monetary policy.

The central bank raised its three key interest rates by 25 basis points on Sept. 10, its second increase since the Middle East conflict began. ECB staff expect inflation to average 3.0% in 2026 and 2.5% in 2027, remaining above the 2% target throughout that period.

Officials have avoided committing to a predetermined rate path, saying future decisions will depend on inflation, incoming economic data, and the strength of monetary policy transmission.

Resilience gives the ECB more room

September’s PMI data change the balance facing policymakers. An economy expanding faster than anticipated can tolerate tighter financing conditions more easily, while stronger demand may also allow higher energy costs to spread further through consumer prices.

The OECD has also become more positive about the region’s prospects in its latest September outlook. At the same time, the ECB still sees substantial uncertainty around the Middle East energy shock, with the eventual impact depending heavily on its duration.

For markets, the combination of a 53.1 PMI, persistent inflation, and resilient growth keeps further monetary tightening firmly in focus.

As we previously reported, Nagel warns the ECB may need further rate increases.

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