Euro zone business activity posts surprise upturn in September, PMI shows

LONDON, Sept 23 (Reuters) - Business activity ‌across the euro ​zone accelerated ​this month at its fastest rate in over three years, confounding expectations for a slowdown, but firms faced a steeper rise in operating ‌costs, a survey showed.

The S&P Global Flash Euro Zone Composite PMI Output ⁠Index jumped to 53.1 in September from August's 52.0, its highest reading since April 2023 and defying ‌expectations in a Reuters poll for ‌a dip to 51.7.

A reading above 50.0 signals an expansion in activity.

"It’s no surprise to see inflationary pressures on the rise again in September, given the increase ​in energy prices emanating from the ongoing conflict in the Middle East, so it’s all the more encouraging to see the resilience of economic growth being reported," ⁠said Chris Williamson, chief business economist at S&P Global.

Overall new orders surged at their fastest pace in over four ​years supported by a further rise in exports - which include intra-euro zone trade.

Both the services and manufacturing industries contributed to the expansion. The ​services PMI bounced to 53.0 from 51.6, its ‌highest in nearly a year and well ahead of the poll estimate for a fall to 51.5.

The manufacturing index held steady at ⁠August's 52.7 but a gauge of output - which feeds into the composite PMI - nudged up to 53.4 from 53.3.

To meet the rise in demand firms took on more staff but faced a ⁠jump in input costs due to elevated energy prices stemming from the US war with Iran. They ​were able to pass some of this on to customers.

Earlier this month the European Central Bank raised interest rates for the second time this year to quell an energy-driven inflation rise and warned ‌price pressures could prove lasting. Markets are pricing three more hikes by end-June.

"The resilience of economic growth amid the headwinds of ‌geopolitical issues and rising prices will likely embolden the ECB to hike interest rates again before ⁠the end of the year, adding ‌to the case for rates ​to rise sooner rather than later to put an October hike very much on the table,” Williamson added.

(Reporting by Jonathan Cable; Editing by ‌Toby Chopra)

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