Eurozone recovery hits three-year high, but Italy loses pace
The Eurozone's private sector accelerated to its strongest performance in nearly three-and-a-half years during September, with the composite PMI rising to 53.1 points from 52.0 in August. The figure marks a 41-month high and exceeded market expectations of 51.7.
Germany and Spain drove the gains. The German composite index climbed to 53.8 points from 51.8, while Spain's services sector surged to 58.3 points from 57.8. France also returned to growth, with its composite reading reaching 51.1 points from 48.5.
Italy moved in the opposite direction. The national composite PMI fell to 51.0 points from 53.6 in August, recording the slowest private-sector growth of the third quarter.
What the numbers mean
The PMI, or Purchasing Managers' Index, measures economic health in manufacturing and services. A reading above 50 signals expansion; below 50 indicates contraction. The Eurozone's latest figures show manufacturing production growing at its fastest pace since May 2022, while services expanded for a third consecutive month.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the recovery has become "broad-based," with output increasing across all surveyed member states for the first time in over a year. Factories have started hiring again after three years of job losses, responding to a solid increase in order books.
Italy's slowdown
The drop in Italy's composite index stems largely from a sharp deceleration in services, which fell to 51.7 points from 55.2. That reading, well below the 54.6 analysts expected, marks the weakest growth in the sector since June.
Cost pressures intensified. Input price inflation reached its highest level in four months, driven by energy costs, fuel, transport and wages linked to ongoing tensions in the Middle East. Selling price followed suit, rising at the fastest rate in nearly two-and-a-half years.
Domestic demand weakened, even as exports grew at their strongest pace since May 2024. Hiring in services also slowed, and business confidence was restrained by concerns about high interest rates and the broader economic outlook.
Manufacturing offered only marginal relief. The sectoral PMI edged up to 50.4 points from 49.6, crossing back into expansion territory. But new orders and production continued to decline, albeit modestly, and suppliers' delivery times lengthened due to logistics bottlenecks and shortages of electronic components.
What happens next
The European Central Bank now faces a familiar dilemma. Growth is stronger than expected, but inflationary pressures are building, with input and output prices rising at the fastest rate since May. Williamson estimated the PMI data implies inflation approaching 4%, far above the ECB's 2% target.
Markets anticipate up to three additional interest rate increases over the next 12 months, though an immediate move at the October meeting appears unlikely. ECB President Christine Lagarde has signalled a preference for a "measured response," spacing out rate rises rather than front-loading them.
For residents in Italy, the divergence with core Eurozone partners matters. Stronger growth in Germany and Spain could attract investment away from slower economies, while higher interest rates would increase borrowing costs on mortgages and business loans already strained by rising input costs.
How the major economies compare
• Germany: Composite PMI at 53.8, the highest in nearly a year, supported by fiscal relief measures and reforms.
• Spain: Fastest-growing economy in the Eurozone, with services at 58.3 and manufacturing returning to expansion at 51.0.
• France: Composite at 51.1 after returning to growth, though new orders contracted for a fifth month.
• Italy: Composite at 51.0, the lowest since June, weighed down by services weakness and persistent cost inflation.
