Eurozone business activity expands modestly – PMI

Business activity in the euro area’s private sector saw modest expansion midway through the third quarter, as indicated by provisional PMI data. The HCOB Flash Eurozone Composite PMI Output Index rose to 51.2 in August from 50.2 in July, marking the fastest pace of output growth since May.

This uptick was primarily driven by a strong performance in the services sector, which recorded its highest expansion in four months, particularly in France, where output surged to its highest level in nearly 18 months, likely spurred by the Olympic Games in Paris.

Despite this positive trend, the manufacturing sector remained in decline, with production falling for the seventeenth consecutive month, mirroring the sharp contraction seen in July. Germany’s private sector faced a second consecutive month of contraction, reflecting weaker economic momentum across the bloc’s largest economy.

New orders continued to decrease, marking the third consecutive month of decline, with manufacturing new orders suffering their largest drop since late 2023.

Employment levels stagnated, with a slight reduction in the workforce, ending a seven-month growth streak, as confidence in future output reached its lowest level this year.

Input cost inflation eased to an eight-month low, but companies raised their selling prices at the fastest pace since April.

Services sector prices increased notably, reflecting persistent cost pressures despite waning demand. The contrasting trends between sectors suggest potential future challenges, as the fading impact of temporary boosts like the Olympic Games could further strain the eurozone’s economic recovery.

“The ECB might find some reassurance in the latest price indices. Input costs in the services sector, which are closely watched by monetary authorities due to the significant role wages play, rose at the slowest pace in 40 months,” Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank said.

“So, even though output prices in the service sector climbed faster than they did in July, the easing of cost pressures strengthens the case for an interest rate cut at the ECB’s September meeting,” he added.