Quick brief: Flash PMI data showed euro-zone activity expanding faster than expected, led by manufacturing and stronger new orders.
Euro-zone business activity expanded at its fastest pace since November, according to flash purchasing managers’ index data that showed manufacturing gaining strength and new orders improving across the currency bloc.
The S&P Global Flash Euro Zone Composite PMI Output Index edged up to 52.1 in August from 52.0 in July. The reading beat economist expectations and stayed above the 50 mark that separates growth from contraction.
The data suggest the 21-country bloc has retained momentum despite higher energy prices, geopolitical pressure and renewed questions over inflation. The euro-zone economy expanded 0.4% in the second quarter, and the latest surveys point to another quarter of growth.
Manufacturing Leads the Improvement
The strongest signal came from factories. The manufacturing PMI rose to 52.8, a more than four-year high, while output growth reached its strongest level in 54 months. New orders increased at the fastest pace in 40 months.
Export orders also improved, including trade between euro-zone countries. That matters because external demand has been a weak spot since Russia’s invasion of Ukraine in 2022 disrupted energy, trade and business confidence across Europe.
Services were steadier rather than spectacular. The services PMI held at 51.7, defying forecasts for a slowdown. Germany saw manufacturing offset weakness in services, while France contracted more sharply than expected after heatwaves weighed on activity.
Inflation Still Clouds the Outlook
Price pressure eased in the survey, with input costs rising at the slowest pace in six months and output-price inflation softening to a five-month low. That is welcome news for the European Central Bank, but it does not end the inflation debate.
Inflation was 2.9% in July, still above the ECB’s 2% target. Economists cited in the Reuters report expect the central bank to raise rates again next month, even as firms remain less confident about the year ahead.
Higher oil prices and bond yields remain a risk. If energy costs keep feeding into transport, manufacturing and household bills, the growth improvement could be accompanied by renewed inflation pressure.
Why It Matters
The euro-zone has spent much of the past few years navigating weak demand, expensive energy and cautious consumers. A manufacturing-led improvement gives policymakers a stronger base, but it also complicates rate decisions.
For markets, the message is mixed: Europe is not sliding into stagnation, but the ECB may not have enough comfort to turn softer yet. The next inflation prints and final PMI revisions will decide whether August marks a real turning point or a temporary lift.
Sources
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