Euro Zone Growth Snaps Out of Its Lull as PMI Hits 29-Month High

The euro zone has finally posted a piece of data that looks like genuine momentum rather than mere stabilization. The latest HCOB Eurozone Composite Purchasing Managers’ Index, compiled by S&P Global, rose to 52.5 in October, up from 51.2 in September, marking the tenth straight month of expansion and—more importantly—the fastest pace of growth since May 2023. In PMI language, that is not just noise: breaking higher after nearly two and a half years of modest or uneven readings signals that demand is returning, that services are pulling their weight, and that businesses across the bloc are beginning to feel less constrained.Investing.com+1

What stands out in this report is how broad the improvement was. Spain once again led the pack with a composite reading around 56, continuing its run as the bloc’s most dynamic large economy. Germany, which many had written off as stuck in a low-growth trap, surprised on the upside with a reading close to 54—its strongest in roughly two and a half years—driven by a livelier services sector and an easing drag from manufacturing. Italy and Ireland were comfortably in expansion too. Only France broke the otherwise positive pattern, slipping further below the 50-point line that separates growth from contraction, and thereby acting as the main brake on what could have been an even more impressive euro zone print. The picture that emerges is of a bloc growing at different speeds, but growing nonetheless.Investing.com+1

The engine this time was services. After months in which factories were either flat or barely improving, it was the services activity index that climbed to a 17-month high, supported by the sharpest increase in new business in about two and a half years. That tells us demand is not just coming from inventories or public spending, but from real clients placing real orders. Manufacturing, for its part, looks to be past the worst: the euro area manufacturing PMI has edged back to the 50 line, indicating stabilization rather than further contraction. For policymakers in Frankfurt, this is exactly the mix they have been waiting for—services that stay buoyant without pushing inflation back up, and industry that stops being a drag.Investing.com+1

This improvement meshes neatly with the harder data. Euro zone GDP grew 0.2% in the third quarter, slightly better than forecasters expected, and crucially it did so without help from Germany or Italy, both of which were flat. France delivered a surprisingly robust 0.5% quarterly gain, showing that even economies wrestling with political or fiscal uncertainty can still produce growth when external conditions ease. When you set that against a PMI at a 29-month high, the message is that the recovery is not spectacular, but it is becoming harder to dismiss as a statistical blip.Financial Times

Monetary policy is giving this recovery room. With headline inflation now hovering close to the European Central Bank’s 2% target, the ECB has held its key rate at 2% for a third consecutive meeting. That pause is not just a technical decision; it is a signal that the Governing Council is broadly satisfied with the pace of disinflation and willing to let the real economy breathe. A steadier rate environment reduces financing uncertainty for companies and supports the services firms that are currently driving growth. Provided inflation continues to behave, the PMI data make it harder to argue for renewed tightening; if anything, the balance of risks slowly shifts toward an easing conversation in 2026 if growth manages to stay positive.Reuters

None of this means the euro zone has solved its structural problems. The divergence between a strengthening Germany and a contracting France is real, and it matters for confidence, trade, and fiscal coordination. Manufacturing job growth is still lagging, even as total employment in the bloc rose at the fastest pace in 16 months. Political noise—whether over budgets, industrial policy, or external shocks—can still dent business sentiment quickly. But a PMI comfortably above 50, based on better orders and broader services activity, is exactly the kind of early indicator that tends to show up before a more convincing run of quarterly GDP gains. Businesses are telling surveyors they are busier. Historically, that has been a good thing to believe.Reuters+1

Sources: Investing.com; Reuters; S&P Global / HCOB PMI releases; Financial Times coverage of Q3 euro zone growth. Financial Times+3Investing.com+3Reuters+3