Eurozone business activity expanded at its strongest pace in 16 months in September, according to a recent survey. However, the overall growth remained modest as new orders stagnated, raising questions about the sustainability of the economic recovery. The divergence between member states, particularly Germany and France, was a notable feature of the report.
Key Takeaways
- Eurozone Composite PMI rose to 51.2 in September, indicating growth for the ninth consecutive month.
- New orders stagnated, dipping to the breakeven point of 50.0.
- Germany’s business activity accelerated to a 16-month high, while France experienced a contraction.
- Inflationary pressures eased, with input and output costs rising at slower rates.
Divergent National Performance
The HCOB Flash Eurozone Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, increased slightly to 51.2 in September from 51.0 in August. This marks the ninth consecutive month of expansion, exceeding the Reuters poll prediction of 51.1. However, analysts noted that the recent improvements are largely driven by Germany, with other countries showing no signs of similar recovery.
Germany’s PMI surged to a 16-month high of 52.4, surpassing expectations. In contrast, France’s economic activity contracted for the thirteenth month, reaching its fastest pace since April with a PMI of 48.4. This stark difference was attributed to heightened political uncertainty in France, which has led to widespread protests and calls for fiscal reform.
Sectoral Performance and Employment
The services sector was the primary driver of the overall expansion, with its PMI climbing to 51.4 in September, the highest in nine months. Conversely, manufacturing activity lost momentum, with its PMI falling into contraction territory at 49.5.
Overall employment levels stagnated in September, ending a six-month period of job creation. This slowdown in hiring reflects firms’ responses to the lack of new business growth. Manufacturers continued to reduce their workforce, while hiring in the services sector slowed considerably.
Easing Price Pressures
Inflationary pressures within the eurozone showed signs of easing. Both input costs and output prices increased at slower rates compared to previous months. Manufacturing input costs even decreased for the first time in three months. While service firms reported continued inflation, the pace was softer, with price increases at their weakest rate since May.
The services output price PMI, a key indicator for domestic price pressures, declined to 52.7, remaining only slightly above its 2019 average. This easing inflation, coupled with the European Central Bank’s decision to hold interest rates steady, suggests a stable monetary policy outlook for the near future.
