Eurozone manufacturing growth accelerated in September to its fastest pace in more than four years, supported by stronger demand, rising new orders and increased output despite the ongoing Middle East conflict, a survey showed.
The S&P Global Eurozone Manufacturing Purchasing Managers' Index (PMI) rose for a third consecutive month to 52.9 in September from 52.7 in August. The reading was above the preliminary estimate of 52.7 and marked the highest level since May 2022. A reading above 50 indicates expansion.
The improvement was driven particularly by stronger demand for investment goods, including machinery and equipment, with capital-goods production recording its strongest expansion since the post-pandemic rebound, the survey showed.
The recovery was broad-based across the euro zone, with the Netherlands recording the strongest expansion. Germany, the bloc's largest economy, also posted solid growth, while France, Italy and Spain registered more modest increases.
New orders rose at their fastest pace since early 2022, helped by stronger exports. Export growth reached its highest level in more than four and a half years, further supporting the manufacturing recovery.
Factory output also strengthened, with the output sub-index climbing to 53.6, its highest level in 55 months. The improvement helped lift business confidence to its strongest level since February.
The labour market showed signs of improvement as well. After ending a more than three-year period of job cuts in August, manufacturers increased hiring in September, although the pace of employment growth remained modest.
Inflation poses fresh risk
The recovery, however, faces a potential challenge from rising price pressures. Both input costs and factory-gate prices rose faster in September, suggesting inflationary pressures are building again.
Official inflation data due on Friday is expected to show eurozone consumer inflation accelerating to 3.6% in September from 3.2% in August. That would mark its highest level since September 2023.
Rising inflation expectations have also strengthened market expectations of further monetary tightening by the European Central Bank. Markets are currently pricing in three ECB rate increases by mid-2027.
The stronger manufacturing performance is being driven mainly by investment-related demand, while consumer-goods demand remains weaker as higher living costs continue to weigh on household spending.
The divergence between stronger industrial demand and subdued consumer spending could complicate the euro zone's economic outlook. At the same time, renewed increases in input and selling prices may fuel concerns that inflation could remain elevated longer, potentially increasing pressure on the ECB to maintain or raise interest rates.
(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)
