Business activity in the Eurozone expanded again in September

Business activity in the Eurozone expanded again in September, though momentum softened as new order growth stalled following August’s improvement, according to preliminary data from S&P Global released Tuesday.

The Hamburg Commercial Bank flash composite PMI rose to 51.2 from 51.0 in August, slightly above expectations of 51.1. The reading marked the fastest pace of expansion in 16 months and remained comfortably above the neutral 50 threshold separating growth from contraction.

1. Services activity accelerated to 51.4, the strongest in nine months, up from 50.9 in August and well ahead of consensus forecasts of 50.4.
2. Manufacturing slipped back into contraction at 49.5 after stabilizing at 50.7 in August, missing expectations for an improvement to 50.9. Manufacturing output eased to 50.7 from 52.5, while purchasing activity declined at the sharpest pace since March.

Firms reported ongoing inventory depletion, although at a slower pace, while delivery times lengthened. New orders were unchanged, failing to extend the gains seen in August.

Overall employment was broadly stable, ending a six-month run of job creation. Service firms continued to add staff, though hiring slowed to a seven-month low, while manufacturing employment contracted further.

Inflationary pressures eased, with input costs rising at a pace below the long-run average and output charges increasing at the slowest rate since May. Service-sector cost inflation—closely watched by the ECB—remained elevated but moderated slightly.

Business confidence weakened to a four-month low, reflecting heightened pessimism in manufacturing. S&P Global noted that sentiment declined in Germany and France but improved across the rest of the bloc.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, described the manufacturing outlook as “cloudy,” highlighting France’s political shake-up as a drag on production and pointing to significant drops in new orders in both France and Germany. He noted that higher defense spending could provide medium-term support for industrial demand.

With selling prices cooling more sharply, speculation has grown that the European Central Bank may reconsider the timing of its next move, with some analysts suggesting a year-end rate cut could return to the table if inflation continues to ease.

The flash PMI survey covered about 5,000 companies across manufacturing and services, with responses collected between September 11–19. Final September manufacturing results will be released on October 1, followed by services and composite data on October 3.