Recent data indicate that the euro-area economy continues to expand, though not uniformly, and faces headwinds beneath the surface.
Composite PMI at a 16-Month High
In September 2025, the HCOB Flash Eurozone Composite PMI rose to 51.2, up from 51.0 in August. This marks the fastest pace of business activity in sixteen months, reflecting modest but broad private-sector expansion.
• The growth is being driven by the services sector, which remains above the 50-point threshold for expansion.
• In contrast, manufacturing slid into contraction, with its PMI falling below 50.
• Another concern is that new orders have stalled, suggesting the recent momentum may be fragile and dependent on ongoing demand.
There is also a strong divergence among the largest euro-area economies: Germany is showing solid output growth, while France continues to struggle, with declining PMI readings.
Stock Markets: Moderate Gains, Supported by Select Sectors
The euro-area stock market has reflected cautious optimism, helped by positive signals from certain sectors and easing inflationary pressures.
• The Euro Area Stock Market Index (“EU350”) is trading around 2,247.53 points. It has been slightly down in the most recent month (~ -0.7%), but shows solid yearly gains of about +7.7%.
• Broader European indices like the STOXX 600 have seen modest gains, helped recently by strong showings in tech and renewable energy stocks.
• Investors appear encouraged by improving earnings, steady (though not falling) interest rate expectations, and policy support in infrastructure and defence spending.
Risks and Outlook
While the picture is moderately positive, there are several risks that could dampen further growth:
• The weakness in manufacturing and stall in new orders suggest growth may lose steam.
• Divergence between economies (notably France vs Germany) may lead to uneven outcomes in the euro area.
• External risks like tariffs, global demand slowdown, and policy uncertainty remain influential.
Analysts expect growth in the euro area to remain modest, likely in the ~1% range for 2025–2026, with inflation gradually easing toward target.
