Euro Zone Business Activity Accelerates in September Despite Rising Costs
September PMI Data and Economic Overview
LONDON, Sept 23 (Reuters) - Business activity across the euro zone accelerated this month at its fastest rate in over three years, confounding expectations for a slowdown, but firms faced a steeper rise in operating costs, a survey showed.
PMI Index Performance
The S&P Global Flash Euro Zone Composite PMI Output Index jumped to 53.1 in September from August's 52.0, its highest reading since April 2023 and defying expectations in a Reuters poll for a dip to 51.7.
Understanding the PMI Reading
A reading above 50.0 signals an expansion in activity.
Inflationary Pressures and Economic Resilience
"It’s no surprise to see inflationary pressures on the rise again in September, given the increase in energy prices emanating from the ongoing conflict in the Middle East, so it’s all the more encouraging to see the resilience of economic growth being reported," said Chris Williamson, chief business economist at S&P Global.
New Orders and Export Growth
Overall new orders surged at their fastest pace in over four years supported by a further rise in exports - which include intra-euro zone trade.
Sector Contributions
Both the services and manufacturing industries contributed to the expansion. The services PMI bounced to 53.0 from 51.6, its highest in nearly a year and well ahead of the poll estimate for a fall to 51.5.
The manufacturing index held steady at August's 52.7 but a gauge of output - which feeds into the composite PMI - nudged up to 53.4 from 53.3.
Rising Input Costs and Labor Market Response
To meet the rise in demand firms took on more staff but faced a jump in input costs due to elevated energy prices stemming from the US war with Iran. They were able to pass some of this on to customers.
ECB Policy Response
Earlier this month the European Central Bank raised interest rates for the second time this year to quell an energy-driven inflation rise and warned price pressures could prove lasting. Markets are pricing three more hikes by end-June.
Future Rate Hikes and Economic Outlook
"The resilience of economic growth amid the headwinds of geopolitical issues and rising prices will likely embolden the ECB to hike interest rates again before the end of the year, adding to the case for rates to rise sooner rather than later to put an October hike very much on the table,” Williamson added.
(Reporting by Jonathan Cable; Editing by Toby Chopra)
