Euro zone business activity accelerates in August as new orders grow, PMI shows

A man walks on a map showing the countries of the Eurozone in the hallway of the European Central Bank after a meeting of the ECB's governing council in Frankfurt, Germany, Thursday, June 6, 2024. (AP Photo/Michael Probst)

LONDON - Euro zone businesses saw new orders increase for the first time since May 2024 in August, helping overall activity expand at the fastest pace in 15 months despite persistent weakness in exports, a survey said on Thursday.

The HCOB Flash Eurozone Composite Purchasing Managers’ Index, compiled by S&P Global, rose to 51.1 in August from 50.9 in July, marking the third consecutive monthly improvement and the highest reading since May 2024. A Reuters poll had predicted a dip to 50.7.

PMI readings above 50.0 indicate growth in activity while those below point to a contraction.

“Things are getting better. Economic activity has picked up in both manufacturing and services. Overall, we’ve seen a slight acceleration in growth over the past three months,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

The manufacturing sector showed notable improvement with its headline PMI rising to 50.5 from 49.8 in July, moving into expansion territory for the first time in more than three years. Manufacturing output grew at the quickest rate in nearly three-and-a-half years, with the subindex climbing to 52.3 from 50.6.

Services activity continued to expand but at a reduced pace, with the bloc’s dominant sector’s PMI slipping to 50.7 from 51.0 in July.

Germany, Europe’s largest economy, registered its fastest growth since March, driven by a solid manufacturing expansion despite muted services performance. France’s downturn eased to a marginal decline, the smallest in a year, while growth in the rest of the euro zone continued but softened slightly.

Firms continued hiring for the sixth consecutive month, with the pace of job creation quickening to the fastest since June 2024. The employment gains were concentrated in services, while manufacturers continued to shed jobs.

Inflation pressures intensified in August, with input costs rising at the sharpest rate in five months. Service sector cost inflation accelerated to the highest since March, while output prices across the bloc increased at the fastest pace in four months.

“The European Central Bank might wince a little at the rising cost pressures in the services sector. After all, it’s banking on slower wage growth to help bring inflation down in this crucial part of the economy,” de la Rubia added.

“That said, there’s a bit of relief in the fact that inflation in service-sector selling prices has remained more or less steady.”

ECB policymakers are seen waiting until December if they opt to cut rates one more time, a Reuters poll found, but there is no longer a majority consensus for where the deposit rate will be by end-year.

Reporting by Jonathan Cable; Editing by Toby Chopra, Reuters