Eurozone composite PMI in October rose to a 29-month high, with Germany's strong recovery driving growth, while France remains mired in contraction.

Eurozone Economy Achieves Strongest Expansion Since May 2023 in October The eurozone economy witnessed its strongest expansion since May 2023 in October, breaking the sluggish growth trend of the previous nine months of the year. Germany provided substantive impetus for eurozone’s economic growth, offsetting the weak performance of France. On November 5th, final data compiled by S&P Global showed that the eurozone’s composite PMI rose to 52.5 in October, mainly due to Germany reaching a 29-month high in its composite PMI, becoming the engine of regional growth, even as France’s composite PMI further sank into contraction territory. Eurozone Services PMI Leading Growth Data also revealed that the eurozone’s services PMI reached 53 in October, a 17-month high, becoming the main driver of the region’s economic growth. The business activity index rose from 51.3 in September to 53.0, the highest level in nearly a year and a half; new orders grew robustly, and sales increased at the fastest pace in 17 months. Among the major member states, Germany’s services sector saw its fastest growth in more than two years. The new order growth rate reached a two-and-a-half-year high, and employment growth accelerated to the fastest pace in 16 months, showing the largest economy in the eurozone is emerging from previous weakness. However, ongoing political turmoil in France continues to dampen consumer sentiment, with its services sector remaining in contraction for the 14th consecutive month. It is worth noting that eurozone price trends are showing signs of divergence. Input cost inflation slowed for the second straight month, hitting a three-month low, but firms have become more aggressive in pricing, with output price growth reaching the highest in seven months. Dr. Cyrus de la Rubia, Chief Economist of Hamburg Commercial Bank, stated that these data are unlikely to cause concern for the European Central Bank. Germany Emerges as Engine of Growth Germany, the largest economy in the eurozone, stood out in October, with its composite PMI rising to 53.9, a 29-month high, providing crucial support for regional economic expansion. The services sector is the key driver of Germany’s economic growth, with its PMI jumping from 51.5 in September to 54.6 in October, the fastest growth in over two years. This leap not only offset France’s slump, but also signified Germany’s emergence from its previous economic weakness. Hamburg Commercial Bank economist Nils Mueller remarked: “Germany’s services sector is regaining its footing after a period of slowdown. Rising demand, renewed hiring, and improved pricing power bode well for the broader economy, although firms remain cautious about external risks and cost pressures.” Employment data reflects this improving trend. Services employment rebounded in October after declining for the previous two months, registering the fastest growth since April. The notable increase in new business directly boosted job demand. Although business confidence slipped slightly from September’s 16-month high, it remained above the historical trend, signaling expectations for improved economic conditions in the next 12 months. Manufacturing continued to show signs of weakness, though output growth picked up slightly. While factory employment declined and at a faster pace, October saw stable order volumes, a relative improvement compared to the drop in goods sales seen in September. Cyrus de la Rubia noted that maintaining relatively strong growth momentum is not easy, and largely depends on whether government stimulus plans can truly incentivize businesses and households to increase investment and spending. France Drags on Regional Growth France’s economic trajectory stood in sharp contrast to Germany. Its composite PMI dropped to 47.7 in October, an eight-month low, sinking further into contraction territory. France’s services PMI final reading was 48.0, lower than September’s 48.5, and marked the 14th consecutive month of contraction, and the fastest rate of decline since April. Although the figure was better than the initial value of 47.1, political uncertainty continued to weigh on demand. Hamburg Commercial Bank economist Jonas Feldhusen emphasized, “The downward trend in France’s private sector economy at the start of Q4 has not weakened.” He pointed out that weak demand and political uncertainty are key factors behind the decline. Despite facing economic headwinds, services employment grew for the third consecutive month, demonstrating some resilience. However, declining backlogs of work suggest that if weak demand persists, current hiring trends may be unsustainable. Cost pressures eased somewhat, with services providers’ input costs rising at the slowest pace since February 2021, and selling prices edging up slightly after a minor drop in September. Overall business confidence remains subdued, and concern exists over the impact of domestic political developments on future activity levels. Cyrus de la Rubia noted that political stability would help improve France’s economic situation, and passing the 2026 budget proposal would be an important step toward this goal. Despite its weak services sector, official data released in late October showed France’s Q3 economic growth exceeded expectations, with exports surging—primarily from the aerospace sector—and business investment rebounding. Moderate and Manageable Inflation Pressures October saw divergent price trends. Input cost inflation slowed for the second consecutive month, hitting a three-month low and further falling below the historical average. Operating costs in the services sector rose sharply, but the pace eased for the second month, bringing overall inflation back in line with the survey average. Meanwhile, firms were more aggressive in pricing. Output prices for both manufacturing and services rose, with overall price increases reaching the fastest rate since March. Services price growth similarly hit its fastest pace since March. Cyrus de la Rubia stated that while cost inflation for services has eased, selling price inflation has picked up. However, there are currently no signs of broader inflationary pressures. This is because economic growth remains moderate, and the tariff dispute with the US is generating a disinflationary effect in the eurozone, partly due to increased imports from China. He believes these PMI figures are unlikely to cause the European Central Bank concern. Moderate economic growth and manageable inflationary pressure provide the ECB with policy flexibility, enabling it to strike a balance between supporting growth and maintaining price stability. Risk Warning and Disclaimer The market has risks, investment needs caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should evaluate whether any opinions, views, or conclusions contained herein are suitable for their particular circumstances. Any investment made on this basis is at your own risk.