Rising new orders and a three-and-a-half-year peak in output drove an increase in the euro area's private sector activity in September, strengthening the case for a potential European Central Bank interest rate hike before 2027 amid persistent inflation headwinds.
The S&P Global Flash Eurozone Composite PMI Output Index rose to a 41-month high of 53.1 from August's 52, according to data from S&P Global published Wednesday. The seasonally adjusted provisional reading marked the third straight month of business activity expansion and sits above the consensus estimate of 51.7.
Business activity in the manufacturing sector held steady in September, with the PMI remaining at 52.7, against the consensus estimate of 52.6. On the services side, the PMI stood at a 10-month high of 53, above the previous month's 51.6 and the market forecast of 51.4.
"Accelerating business growth means the flash PMI survey is indicative of GDP rising at a quarterly rate of 0.4%, with order book growth picking up further momentum across both manufacturing and services in September to hint at sustained momentum heading into the fourth quarter," S&P Global Market Intelligence Chief Business Economist Chris Williamson said.
Similar to business activity, new orders increased for the third consecutive month, supported by a further increase in new export orders. Meanwhile, output gains were broad-based across all covered eurozone economies.
Germany extended its growth streak to a third month with its fastest output rise in nearly a year, while France returned to expansion for the first time in 10 months. Across the remainder of the euro area, output continued to climb at a "solid," albeit more modest, pace, S&P Global said.
Business confidence remained "relatively muted," with reduced optimism seen in both the services and manufacturing industries. In terms of prices, both input costs and output prices rose at their fastest rates in four months amid intensifying inflationary pressures.
"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.
