**Europe’s Economy Shows Resilience Amid Energy Crisis, Surveys Indicate**
Europe's economy has demonstrated unexpected resilience despite ongoing conflicts in the Middle East and Ukraine, which have significantly increased energy costs for both businesses and households. Key business surveys released on Wednesday reveal that economic activity across the eurozone accelerated in September, marking the fastest growth rate in over three years.
According to S&P Global, the S&P Global Flash Euro Zone Composite PMI Output Index, which measures business activity, rose to 53.1 in September, up from 52.0 in August. This increase defied predictions from a Reuters poll, which had anticipated a decline to 51.7. The highest forecast in the poll was 52.6, suggesting that the actual growth exceeded the expectations of many analysts.
Carsten Brzeski, an economist at ING, commented on the findings, stating, “All in all, today’s PMI readings are almost too good to be true. A eurozone economy that remains completely unharmed by an energy price shock and supply chain disruptions is a welcome surprise. Let’s hope it doesn’t turn out to be a mirage.”
The survey results indicate that the rise in output was widespread across the eurozone, with notable growth in both the manufacturing and service sectors. Germany, the largest economy in Europe, reported solid expansion in September, even as firms grappled with heightened inflationary pressures. Meanwhile, France experienced its fastest growth in over two years, largely driven by a rebound in demand for services.
In contrast, the economic situation in Britain, which is outside the European Union, showed signs of cooling. The PMI for the UK indicated a slowdown in growth amid rising inflation, presenting a challenging scenario for Finance Minister John Healey as he prepares for his first budget next month.
The surveys also highlighted a significant increase in overall new orders within the eurozone, which surged at its fastest pace in over four years. This growth was bolstered by a rise in exports, including intra-eurozone trade. The services PMI reached its highest level in nearly a year, surpassing forecasts for a decline, while the manufacturing index remained stable.
To accommodate the growing demand, firms have been hiring more staff, although they are also facing escalating input costs due to high energy prices, which have been exacerbated by geopolitical tensions, including the conflict involving the US and Iran. Many businesses have managed to pass some of these increased costs onto consumers.
Jack Allen-Reynolds from Capital Economics noted that the improvement in the eurozone’s composite PMI supports the view that, despite weaker official activity data in July, GDP is expected to increase in the third quarter. He added that while output price PMIs have risen, there are currently no indications of “second-round” effects on wages.
Earlier this month, the European Central Bank (ECB) raised interest rates for the second time this year in an effort to combat inflation driven by energy costs. The ECB has cautioned that price pressures could persist, and markets are anticipating three additional rate hikes by the end of June 2027.
Brzeski remarked that the latest PMI readings complicate the ECB's decision-making process, making it challenging for even the most dovish policymakers to dismiss the possibility of further rate hikes.
As Europe navigates the complexities of a turbulent geopolitical landscape, the resilience shown in these economic indicators may provide a glimmer of hope for businesses and consumers alike. The ongoing monitoring of inflationary pressures and energy costs will be crucial as the region seeks to maintain this unexpected momentum in the face of external challenges.