The euro zone economy continued to expand in September, supported by robust German spending, even as political turmoil in France weighed on confidence and new US tariffs threatened to slow growth in the months ahead, according to key data released Tuesday.
The latest HCOB flash composite Purchasing Managers’ Index (PMI), seen as a reliable gauge of economic health, rose slightly to 51.2 in September from 51.0 in August, marking the bloc’s ninth consecutive month of expansion. Economists said the headline figure highlighted the euro zone’s resilience, but underlying trends pointed to a more fragile outlook.
“The details are not as rosy as the headline index suggests,” said Riccardo Marcelli Fabiani of Oxford Economics. “Sentiment was soft and incoming orders from abroad continued worsening, pointing to no strong rebound happening after the drop in exports following the introduction of tariffs.”
Germany once again emerged as the bloc’s main growth engine. Its PMI climbed to a 16-month high of 52.4, well above expectations, reflecting the impact of fiscal expansion that analysts say will sustain growth for years. In sharp contrast, France reported its 13th straight month of contraction, with PMI slipping to 48.4, the steepest decline since April. ING economist Bert Colijn warned that political uncertainty was eroding French business confidence, dragging on wider euro zone sentiment.
The mixed picture extended beyond the continent. In the UK, activity slowed as PMI fell to 51.0 in September from 53.5 the previous month, with firms reporting weaker momentum and fading optimism.
Adding to concerns, the Organisation for Economic Cooperation and Development (OECD) cautioned that the euro zone has yet to feel the full impact of new US tariffs. While many companies have so far absorbed costs by narrowing profit margins, the OECD said the effects would become increasingly visible as higher duties are phased in.
“The full effects of tariff increases have yet to be felt,” the OECD noted, warning that euro zone growth would slow to 1.0% next year, down from 1.2% in 2025. The report highlighted how trade frictions and geopolitical uncertainty are set to offset the benefits of lower European Central Bank interest rates and Germany’s fiscal largesse.
By contrast, fiscal consolidation in France and Italy is expected to dampen growth further, while the UK economy is projected to weaken from 1.4% this year to 1.0% in 2026, reflecting tighter budgets and higher trade costs.
Still, there was some reassurance for policymakers. The OECD forecast inflation would remain near the ECB’s 2% target, sustaining expectations for further policy easing if consumer demand continues to soften.
