Eurozone business activity unexpectedly accelerated in September, with the composite PMI flash reading climbing to its strongest level in over three years. The services sector outperformed forecasts, and both Germany and France, the region's two largest economies, also delivered better-than-expected results. With new orders growing at the fastest pace in more than four years and input costs jumping again due to elevated energy prices, market expectations for further tightening by the European Central Bank have risen notably.

Data released by S&P Global on Wednesday showed the Eurozone composite PMI flash reading rose to 53.1 in September from 52.0 in August, well above the 50 no-change threshold and surpassing the 51.7 anticipated by analysts. The services sector was the biggest surprise, with its PMI rebounding to 53.0 from 51.6 in August, marking a near one-year high, while the market had expected a decline to 51.5. Manufacturing remained steady at 52.7, though the output sub-index edged up to 53.4 from 53.3, continuing to underpin the composite figure.

Overall new orders surged at the quickest pace in over four years, with exports rising further, including intra-Eurozone trade. The pickup in demand encouraged firms to ramp up hiring, but businesses simultaneously faced a substantial increase in input costs. Energy prices, pushed higher by the Middle East conflict and the war involving the United States and Iran, drove operational expenses up sharply, and companies were able to pass some of these costs onto customers.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the renewed rise in inflationary pressures in September was unsurprising given the ongoing Middle East tensions fueling energy costs, but the resilience of economic growth against this backdrop was more encouraging. At the country level, both of the Eurozone's largest economies exceeded expectations. German business activity grew at the fastest pace since October 2025, while France unexpectedly expanded at its quickest rate in over two years.

Williamson pointed out that manufacturing, led by Germany, is experiencing its best growth period in more than four years, supported by rising artificial intelligence and defense spending, while services growth is also recovering, indicating a broadly improving economic picture. He added that order book growth in both manufacturing and services gathered further momentum in September, suggesting sustained economic traction heading into the fourth quarter. However, he cautioned that the strong economy is pushing up consumer prices.

Despite the Eurozone showing greater-than-expected resilience to the Middle East conflict and the spike in energy costs, how long this durability can last remains uncertain. Inflation is currently at its highest level in nearly three years, and borrowing costs are also on the rise. Earlier this month, the ECB implemented its second rate hike of the year, and the second since the outbreak of the Iran war, aiming to curb energy-driven inflation, while warning that price pressures could prove persistent. Officials, reassured by the solid economic performance, have upgraded this year's growth forecast to 0.9%.

The OECD also offered a more positive outlook for the Eurozone, raising its 2026 growth projection by 0.2 percentage points to 1% on Wednesday, while upgrading forecasts for Germany, Italy, and Spain. By contrast, the organization slashed its forecast for France, now projecting growth of just 0.4% for the region's second-largest economy. Market pricing currently indicates three additional rate hikes by the ECB by the end of next June.

Williamson believes that the resilience of growth amid geopolitical headwinds and rising prices could encourage the ECB to raise rates again before year-end, adding weight to arguments for acting sooner and making an October move very possible. The central bank could act again as early as next month. The PMI is closely watched by markets because it is released at the start of each month, providing an early read on economic trends and turning points. As a measure of the breadth, rather than the depth, of output changes, business surveys can sometimes struggle to map directly onto quarterly GDP performance, but the latest reading has reinforced market attention on the Eurozone's economic resilience and inflationary pressures.