Euro zone factory growth accelerates again in September, PMI shows

By Indradip Ghosh

BENGALURU, Oct 1 (Reuters) - ‌Factory growth in ​the euro ​zone continued its upward march in September, hitting its fastest rate in more than four years, as resilient demand drove new orders and output ‌to multi-year highs despite the ongoing Middle East conflict, a survey showed.

S&P ⁠Global's Eurozone Manufacturing Purchasing Managers' Index (PMI) rose for a third consecutive month to 52.9 in September from ‌52.7 in August, its highest level ‌since May 2022 and above a preliminary estimate of 52.7.

A reading above 50.0 indicates growth.

"The upturn is being driven by rising demand for investment goods such as ​machinery and equipment, with output of these capital goods growing in September at a rate not seen since the post-COVID rebound five years ago," said Chris Williamson, ⁠chief business economist at S&P Global Market Intelligence.

"This reflects higher demand for AI and defence-related equipment in particular."

Growth was broad-based across ​the bloc, with the Netherlands leading the expansion. Germany, the region's largest economy, recorded solid growth while expansion was modest in France, Italy ​and Spain.

New orders expanded at their fastest rate ‌since early 2022, helped in part by export growth that hit a more than four-and-a-half-year high.

The output sub-index climbed to a 55-month ⁠high of 53.6, supporting a rise in business confidence to its strongest level since February.

After ending a more than three-year run of job cuts in August, manufacturers stepped up hiring in September, albeit ⁠modestly.

However, rising prices could threaten the recovery. Both input and output inflation accelerated last month, pointing to ​mounting inflationary pressures. Official data due on Friday is expected to show inflation rose to 3.6% in September from 3.2% in August, the highest since September 2023.

Elevated inflation expectations have increased chances of ‌further rate hikes from the European Central Bank with markets currently pricing in three rate hikes by mid-2027.

"Demand for consumer goods continues ‌to fall ... with the increased cost of living acting as a drag on household spending," ⁠added Williamson.

"It’s therefore worrying to see ‌both input costs and selling ​prices rising at increased rates again in September, which will fuel speculation about additional rate hikes from the ECB."

(Reporting by Indradip Ghosh; Editing by ‌Toby Chopra)

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