Business activity across the eurozone reached its strongest level in 16 months during September, though concerns remain about whether this growth can continue as new orders stopped increasing after a brief uptick the month before.
The HCOB Flash Eurozone Composite Purchasing Managers’ Index, put together by S&P Global, climbed to 51.2 in September from 51.0 in August. This marked the ninth straight month of expansion. Experts had expected a reading of 51.1.
Germany gains while France slips
Fresh data revealed a sharp split between the region’s two largest economies. Germany showed strong improvement, while France struggled with ongoing political troubles that hurt business confidence.
“The composite PMI for manufacturing and the service sector in the euro area rose slightly again in September. It thus continued its slight upward trend,” said Ralph Solveen at Commerzbank. “The improvement in recent months is solely attributable to a rise in the German index, while there are no signs of improvement in the other countries.”
Germany’s PMI jumped to a 16-month peak of 52.4, beating predictions that called for a small increase to 50.6 from 50.5. But France told a different story – activity shrank for the thirteenth month running and at the quickest rate since April, with its PMI dropping to 48.4.
“From a country perspective, France stands out negatively. The PMI dropped to the lowest level since April, with declines in both manufacturing and services,” said Bert Colijn at ING. “That stands in contrast to Germany, where services activity picked up according to the PMI. With heightened political uncertainty, the French economy appears to be mirroring this sense of instability.”
Last week, hundreds of thousands of people joined protests across France against budget cuts. The demonstrators wanted the previous government’s spending plans thrown out, more money for public services, higher taxes on rich people, and changes to an unpopular rule that makes people work longer before they can retire.
In Britain, which left the European Union, companies said they felt less confident and things were slowing down. They worried about possible new taxes in finance minister Rachel Reeves’ budget coming in November. The British PMI also showed fewer people getting hired.
Service companies drove the eurozone’s overall growth
The services PMI went up to 51.4 from 50.5 in August – the best reading in nine months and much better than experts thought, who predicted no change at all.
But manufacturing moved in the wrong direction. That sector’s main number fell into shrinking territory at 49.5 from 50.7 in August.
Job numbers stayed flat in September, ending six months of new hiring as companies reacted to the lack of new business coming in. Factories kept cutting workers, while service companies hired people at the slowest pace in seven months.
Signs point to little chance of a quick turnaround. The measure that tracks new business orders – which shows demand – fell to exactly 50.0 from 50.3.
Price pressures got weaker during the month. Both the costs companies pay and the prices they charge customers went up more slowly than before. Manufacturing companies saw their costs go down for the first time in three months. Service firms still faced high price increases, but not as steep as before, and they raised their own prices at the weakest rate since May.
“The services output price PMI – which policymakers might watch particularly closely as a guide to domestic price pressures – declined to 52.7, leaving it only a touch above its 2019 average of 52.4,” said Jack Allen-Reynolds at Capital Economics.
The European Central Bank kept interest rates the same earlier this month. Another survey suggests the bank has finished cutting rates for now.
The mixed picture shows the eurozone economy growing but facing headwinds. While Germany’s strength helped lift overall numbers, France’s struggles and weak demand across the region raise questions about how long this modest expansion can last.
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