Eurozone business activity growth hits 17-month high, but France limits upside

Private sector activity across the eurozone expanded by more than expected in October, according to data from S&P Global/Hamburg Commercial Bank (HCOB) on Friday, growing at its fastest pace in a year and a half.

The flash reading of the S&P Global/HCOB composite purchasing managers' index (PMI) rose to 52.2 this month from 51.2 in September, marking the 10th straight month of growth – measured by any figure over 50.0.

This was comfortably above the 51.0 reading expected by analysts and the highest rate of growth since May 2024. In fact, this was the joint-fastest rate of expansion in two and a half years.

The service-sector PMI jumped to a 14-month high of 52.6, from 51.3 the previous month, while the manufacturing PMI broke even at 50.0, up from 49.8.

New orders rose at their sharpest rate since April 2023. This was led by the services sector, but manufacturing new orders broadly levelled out following a fall in September. Meanwhile, employment returned to growth as levels of backlogged work stabilised.

Results were bolstered by a strong showing in the region's largest economy, Germany, where the pace of growth hit a 29-month high of 53.8, as a surge in activity in services made up for a continued downturn in manufacturing (albeit at a reduced rate).

Limiting upside, however, was activity in France, which saw its 14th straight monthly decline in output at its steepest decrease since February.

However, looking forward, business confidence fell to a five-month low, slipping below the historical average, with weaker optimism for the year ahead seen across services and manufacturing.

“France is increasingly becoming a drag on the eurozone economy. While the economic situation in Germany brightened significantly in October, the rate of contraction has accelerated for two months in a row in France. As a result, economic growth in the eurozone, even though accelerating a bit, has been much weaker than it otherwise could have been," said Cyrus de la Rubia, chief economist at HCOB.

"Uncertainty about whether the current government under Sebastien Lecornu can remain in power for much longer in view of the disputes over the 2026 budget is causing unease and contributing significantly to the weak economic situation in France. As an important buyer of products and services from other eurozone countries, France’s weakness contributes to the fragility of the recovery in the rest of the eurozone."