Driven by robust service demand and increased investments in artificial intelligence, Eurozone business activity expanded at its fastest pace since April 2023. However, this economic acceleration has brought fresh inflationary challenges.
Key Highlights:
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29-Month High for Activity: The composite Purchasing Managers’ Index (PMI)—which combines services and manufacturing—climbed to 53.1 in September, up from 52.0 in August. The services PMI rose to 53.0.
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Inflation Surges to 3.8%: Driven largely by soaring energy costs linked to geopolitical tensions, annual inflation jumped higher than expected to 3.8% (up from 3.2% in August), moving further away from the European Central Bank’s 2% target.
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Divergent Country Performance: Spain led major economies in growth, followed by Ireland and a recovering Germany. Meanwhile, Italy and France posted more modest gains.
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Complicated ECB Outlook: Stronger-than-expected activity combined with persistent price pressures has led financial markets to price in more than two ECB interest-rate hikes by mid-next year, as policymakers weigh whether to respond more aggressively to sticky inflation.
