Euro area business activity sees further pick up in August despite France, Germany softness
- August flash services PMI 51.7 vs 51.5 expected
- Prior 51.7
- August flash manufacturing PMI 52.8 vs 51.8 expected
- Prior 51.9
- August flash composite PMI 52.1 vs 51.7 expected
- Prior 52.0
After the misses from France and Germany, this is a bit of a surprise - especially the services sector estimate. The pace of expansion in the services sector was unchanged from July but comes in better than what we saw from Europe's two largest economies, with growth outside of the region picking up considerably. Who needs France and Germany eh?
Meanwhile, the manufacturing sector also performed well with the index there climbing to a 51-month high as manufacturing output hits a 54-month high in August.
All in all, a further rise in both output and new orders with a first expansion in new export business in roughly four-and-a-half years is helping to bolster private sector activity in Q2. That will help to ease any further stagflation concerns for the ECB, even if France and Germany in particular are likely to come under more scrutiny in the months ahead.
Looking to price pressures, input cost inflation eased to the weakest since February but remained sharp and was still some way above the levels seen before the Middle East conflict started. So, there's that.
S&P Global notes that:
"A sustained solid rise in business activity in August sets the eurozone up for a robust increase in third quarter GDP of around 0.3%. The manufacturing sector is again the star performer, enjoying its strongest growth for four-and-a-half years, with the services economy providing a supporting role, notching up another month of decent growth after the malaise seen in the second quarter.
“We are again seeing reports of precautionary stock building helping support the goods-producing sector amid the ongoing supply chain disruptions emanating out of the Middle East, with supply chain delays again remaining worryingly widespread in August. However, there are also encouraging signs of rising demand for AI-related tech goods and rising equipment demand thanks to higher defence spending, notably helping Germany in particular achieve increasingly impressive production gains.
“In the service sector, rising tourism spending is helping boost economic growth, notably outside of France and Germany, where the region collectively saw the fastest services growth for over three years.
“Although high prices reportedly continue to dampen demand, price pressures have shown signs of further easing. Policymakers will be especially encouraged to see services selling price inflation back down to the joint-lowest so far this year (alongside March), with goods price inflation also continuing to moderate. However, with the flash PMI signalling solid third quarter GDP growth, a return to hiring by companies for the first time this year, and inflation remaining elevated by historical standards, a hawkish bias is likely to be maintained and further imminent rate hikes cannot be ruled out.”This article was written by Justin Low at investinglive.com.
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