Services sector and Germany-France exert strength! Eurozone September PMI unexpectedly surges to a three-year high, market bets on ECB raising rates again in October

According to Zhituo Finance APP, business activity in the Eurozone unexpectedly accelerated in September, with the composite PMI preliminary reading reaching its highest level in over three years. The services sector improved beyond expectations, and both Germany and France, the region’s largest economies, also outperformed forecasts. As new orders grew at their fastest pace in over four years and input costs spiked again due to high energy prices, market bets on further European Central Bank rate hikes have heated up significantly.

Data released by S&P Global on Wednesday showed that the Eurozone’s composite PMI preliminary reading for September rose to 53.1 from 52.0 in August, well above the crucial 50 threshold separating expansion from contraction and beating analysts’ forecast of 51.7.

Looking at the subcomponents, the services sector stood out as the biggest surprise. The Eurozone’s services PMI rebounded to 53.0 in September from 51.6 in August, the highest in nearly a year, while the market had expected a drop to 51.5. The manufacturing PMI held steady at 52.7, matching August, but the output gauge edged up from 53.3 to 53.4, continuing to support the composite PMI. Overall new orders surged at the fastest pace in over four years, and exports rose further, including internal Eurozone trade.

The recovery in demand led businesses to increase hiring, though companies simultaneously faced sharply rising input costs. Due to Middle East conflicts and the US-Iran war pushing up energy prices, operating costs for businesses jumped significantly, and part of these costs could be passed on to customers.

S&P Global Market Intelligence Chief Business Economist Chris Williamson noted that the renewed inflationary pressure in September was unsurprising, as ongoing Middle East conflicts have driven up energy prices. However, in this context, the resilience of economic growth is even more encouraging.

At the national level, both of the Eurozone’s largest economies exceeded expectations. Germany’s business activity expanded at its fastest pace since October 2025, and France’s unexpected expansion marked its quickest growth rate in more than two years. Williamson pointed out that the manufacturing sector led by Germany is experiencing its best growth in over four years, with rising spending on artificial intelligence and defense acting as key drivers; meanwhile, services sector growth is rebounding, indicating broad improvements in the economic growth narrative.

Williamson also stated that both manufacturing and services order books continued to build momentum in September, suggesting the economy could maintain its pace into the fourth quarter. However, he also cautioned that robust economic activity is pushing up consumer prices.

Although the Eurozone economy has shown unexpected resilience in the face of Middle East conflict and surging energy costs, it remains uncertain how long this resilience will last. Currently, inflation in the Eurozone is at its highest level in nearly three years, and borrowing costs are also rising. Earlier this month, the European Central Bank implemented its second rate hike of the year—and the second since the Iran war—in an attempt to curb energy-driven inflation, warning that price pressures may prove persistent. Officials, reassured by the economy's solid performance, have raised this year’s economic growth forecast to 0.9%.

The OECD also provided a more optimistic outlook for the Eurozone, raising its 2026 growth forecast by 0.2 percentage points to 1% on Wednesday and also adjusting its forecasts for Germany, Italy, and Spain higher. In contrast, the organization sharply cut its forecast for France, now expecting the Eurozone's second-largest economy to grow by just 0.4%.

Current market pricing indicates the European Central Bank will raise rates three more times by the end of June next year. Williamson believes that, amid geopolitical headwinds and rising prices, the resilience in growth may encourage the ECB to hike rates again before year-end, increasing the justification for acting sooner and making an October rate hike “very likely.” The ECB may act again as early as October.

The PMI is closely watched by the market because it is released at the start of each month and can provide an early signal of economic trends and turning points. As a breadth indicator of changes in output—not a depth measure—these business surveys can sometimes be difficult to map directly onto quarterly GDP performance, but the latest readings have reinforced market focus on the Eurozone economy’s resilience and inflation pressures.