Business activity across the eurozone accelerated sharply in September, with preliminary economic data showing the private sector expanding at its fastest pace in more than three years.

The S&P Global Flash Eurozone Composite PMI Output Index increased to 53.1 in September from 52.0 in August, marking its highest level since April 2023. A PMI reading above 50 indicates expansion in private-sector activity.

The latest figures indicate that economic momentum strengthened during September despite continued pressure from rising energy and operating costs.

New Orders Show Strong Improvement

One of the strongest signals in the latest data came from new orders.

Overall new orders increased at their fastest pace in more than four years, supported by stronger demand and rising exports, including trade between countries within the euro area.

The improvement in orders provides an important indication of business demand because companies typically increase production and services when incoming orders strengthen.

The increase also suggests that the improvement in September was not limited to existing activity but was accompanied by stronger demand for goods and services.

Services Sector Accelerates

The services sector played an important role in the improvement.

The eurozone services PMI increased to 53.0 in September from 51.6 in August, reaching its highest level in nearly a year.

The stronger services performance helped lift overall private-sector activity.

Services remain a major component of the eurozone economy, meaning changes in service-sector activity can have a significant influence on the broader economic picture.

Manufacturing Continues to Expand

Manufacturing also contributed to the September improvement.

The manufacturing PMI remained at 52.7, unchanged from August, while the manufacturing output index edged higher to 53.4 from 53.3.

The manufacturing recovery was particularly supported by stronger activity in Germany.

The combination of expanding manufacturing and services indicates that September’s improvement was relatively broad rather than being driven by only one major sector.

Germany and France Show Different Trends

Germany recorded another month of expansion, with the pace of business activity reaching its fastest level in almost a year.

France also showed a notable improvement, with business activity increasing for the first time in ten months.

The performance of Europe’s two largest economies is important for the wider eurozone because together they represent a substantial share of regional economic activity.

The latest figures therefore provide evidence of improving conditions in several major economies.

Employment Edges Higher

Companies responded to stronger demand by increasing employment, although the pace of job creation remained relatively subdued.

Employment increased for a second consecutive month in September, suggesting that some businesses were becoming more willing to expand their workforce as activity improved.

However, business confidence about the year ahead remained affected by geopolitical uncertainty and higher costs.

Rising Energy Costs Remain a Challenge

The stronger economic activity came alongside renewed inflationary pressure.

Both input costs and output prices increased at their fastest rates in four months, with higher energy costs contributing to the rise in business expenses.

Companies faced higher costs for operating their businesses and some of these increases were passed on to customers.

This creates a difficult environment for businesses because stronger demand is accompanied by increasing production expenses.

Growth and Inflation Pressures

The September data present a mixed picture for the eurozone economy.

On one side, stronger orders, rising output and improving employment point toward greater economic momentum.

On the other, increasing energy and operating costs could place additional pressure on businesses and consumers.

The combination means that future economic performance will depend partly on how energy prices and geopolitical conditions develop.

What the Data Mean for Businesses

The latest PMI figures suggest that eurozone businesses entered the autumn with stronger momentum than expected.

The Composite PMI’s rise to 53.1 represents a significant improvement from August’s 52.0 reading and the strongest expansion since April 2023.

Stronger new orders also provide an important indicator for future business activity.

However, rising costs remain a key issue for companies, particularly those exposed to energy-intensive operations.

Outlook

The September data point to a broader improvement in eurozone private-sector activity, supported by both manufacturing and services.

Whether this momentum continues will depend on demand, export performance, employment conditions, energy prices and the wider geopolitical environment.

For now, the latest numbers show that the eurozone private sector is expanding at its fastest pace in more than three years, while businesses simultaneously face renewed pressure from rising costs.