A glimmer of optimism shone over the eurozone economy on Friday, as fresh business activity data revealed the fastest pace of private sector growth since mid-2023.
October’s Composite Purchasing Managers’ Index (PMI) for the eurozone rose to 52.2 from 51.2 in September, according to flash estimates, marking the ninth consecutive month of expansion and tying for the most robust reading since May 2023.
The outcome defied market expectations of a slowdown to 51, offering signs that the bloc’s economic recovery may be regaining traction.
The upturn was broad-based, with both the services and manufacturing sectors contributing to the improvement, though growth was again led by services, where activity reached the highest level since August 2024.
The services PMI rose to 52.6 in October from 51.3, surpassing forecasts of 51.1. Manufacturing output also improved, with the PMI climbing to the neutral threshold of 50 — the first time in expansionary territory since mid-2022.
Employment returned to growth territory, underpinned by stabilising backlogs of work, although inflation dynamics showed a mixed picture.
While input cost pressures softened, businesses increased output prices at the fastest rate in seven months, suggesting a modest uptick in consumer-facing inflation. Economists viewed this as supporting the European Central Bank’s decision to hold rates steady.
Diverging paths for Germany and France
The bloc’s two largest economies, Germany and France, continued to show markedly different trajectories.
Germany’s recovery gained traction in October, with private sector output expanding at the fastest pace in nearly two and a half years. The Composite PMI climbed to 53.8 from 52.0 in September, fuelled by robust services growth and a steadying manufacturing sector.
New orders rebounded and backlogs increased for the first time since mid-2022, while inflationary pressures strengthened amid rising input and output prices.
“This is an unexpectedly good start to the final quarter,” said Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“Activity in the service sector has increased significantly, and output in the manufacturing sector has risen for the eighth consecutive month.”
However, he also flagged persistent issues in German manufacturing, especially surrounding semiconductor supply chains, which continue to affect key industries such as automotive and mechanical engineering.
In stark contrast, France’s private sector sank deeper into contraction.
The economic downturn deepened in October, as the French Composite PMI fell to 46.8 from 48.1 in September, marking the lowest level since February and the 14th straight month of contraction.
Services weakened further to 47.1, while manufacturing stayed below the 50-point threshold at 48.3.
“France is increasingly becoming a drag on the eurozone economy,” de la Rubia said. He pointed to ongoing political uncertainty surrounding the 2026 budget and the government of Prime Minister Sébastien Lecornu, adding that this instability is “contributing significantly to the weak economic situation”.
Markets await US CPI report
Despite the stronger-than-expected PMI figures, market response across Europe was subdued as investors awaited key US inflation data later in the day.
The Euro STOXX 50 index was flat, just shy of record highs touched earlier in the week. Germany’s DAX also showed little movement at just after midday in Europe, while France’s CAC 40 declined 0.39%, weighed down by concerns over the domestic outlook.
Among corporate movers, Italian energy major ENI surged 2.44% on stronger-than-expected results and a boost from rising oil prices, following US sanctions on Russian energy giants Rosneft and Lukoil.
French pharmaceutical group Sanofi climbed 0.79% after reporting a third-quarter earnings beat and reaffirming its full-year outlook. Swedish defence firm Saab and French auto supplier Valeo also impressed, rising 6.08% and 8.40% respectively on positive earnings surprises.
On the currency front, the euro remained steady at 1.16 against the dollar. In fixed income, German Bund yields edged up two basis points to 2.61%, while the French-German yield spread held firm at 80 basis points.
