Euro Zone Business Activity Accelerates Despite Energy Shock

Business activity across the euro zone expanded in September at its fastest pace in more than three years, according to preliminary business surveys, indicating that the region’s economy has remained resilient despite higher energy costs linked to conflicts in the Middle East and Ukraine.

The S&P Global Flash Euro Zone Composite PMI Output Index rose to 53.1 in September from 52.0 in August. Readings above 50 indicate that activity is expanding. The September result exceeded expectations in a Reuters poll, in which economists had forecast a decline to 51.7. The highest forecast had been 52.6.

The increase was broad-based across the countries covered by the survey, with both manufacturing and services recording growth. New orders across the currency union rose at their fastest rate in more than four years, supported by increased exports, including trade within the euro area. The services PMI reached its highest level in nearly a year, while the manufacturing index remained steady.

Germany, the euro zone’s largest economy, recorded a solid expansion in business activity. Its flash composite PMI rose to 53.8 in September from 51.8 in August, reaching its highest level since October 2025. The services index moved back into expansion territory, increasing to 52.9 from 49.7, while manufacturing remained in growth despite a modest decline in its index.

France’s private sector also returned to growth. Its flash composite output index increased to 51.2 from 48.5 in August, marking the strongest expansion in just over two years. The recovery was led by services, while manufacturing output growth was marginal. New orders rose for the first time in ten months, although employment continued to fall and firms reported higher input costs and selling prices.

The survey results for the euro zone showed that businesses responded to stronger demand by increasing staffing. At the same time, companies reported a sharp rise in input costs, attributed in part to elevated energy prices arising from the conflict involving the United States and Iran. Firms were able to pass some of the increased costs on to customers, contributing to higher output prices.

The energy shock has added to inflationary pressure across the region. Earlier in September, the European Central Bank raised interest rates for the second time this year in response to rising energy-driven inflation and warned that price pressures could persist. Market pricing at the time of the September survey indicated expectations of three additional rate increases by the end of June 2027.

The stronger business surveys also support expectations that euro zone gross domestic product will increase in the third quarter. The PMI output measure is a survey-based indicator and is not itself an official GDP estimate. However, the September acceleration provides an indication of stronger business momentum following weaker official activity data in July.

The European Commission’s consumer-confidence indicator presented a more subdued picture. Its September flash estimate showed consumer confidence declining by 0.8 percentage points in the European Union and by 1.0 point in the euro area. The indicators stood at -15.8 for the EU and -16.5 for the euro area, moving further from their long-term averages after several months of recovery.

The divergence between business surveys and consumer confidence reflects differing signals across the economy. The September PMI showed stronger activity and new orders among surveyed firms, while the Commission’s flash measure indicated that households remained cautious. The survey data do not establish how long the improvement in business activity will continue or how much of it will translate into stronger household demand.

The outlook also remains exposed to the duration and consequences of the Middle East conflict, energy-market disruptions and supply-chain pressures. The OECD’s September interim economic outlook said that global growth had moderated in the first half of 2026, while the effects of the conflict had been partly cushioned by energy inventories, additional supply from outside the Gulf region and government support measures. It also noted that renewed disruptions to Gulf production and exports had pushed energy prices higher.

The September surveys therefore indicate that euro zone business activity expanded more strongly than anticipated despite the increase in energy costs. The data show growth across both major sectors and stronger new orders, alongside rising input costs and renewed inflationary pressure. They provide a preliminary indication of economic conditions in September rather than a definitive measure of the region’s quarterly output or the longer-term impact of the energy shock.

By fLEXI tEAM