Key points
- Eurozone business activity expanded at its fastest pace in 15 months in August. New orders increased for the first time since May 2024.
- The manufacturing sector showed significant improvement, entering expansion territory.
- Employment growth accelerated, with job creation at its fastest since June 2024.
- Inflationary pressures intensified, however, with rising input and output costs.
The Eurozone economy demonstrated a surprising surge in August, marking its strongest growth in 15 months, according to a new survey released Thursday. The HCOB Flash Eurozone Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 51.1, exceeding expectations and signaling a robust expansion.
This represents the third consecutive monthly improvement and significantly outperformed the anticipated 50.7 reading. The index’s rise above 50 indicates growth, reflecting an overall positive shift in economic activity.
A resurgence in the manufacturing sector largely drives this uptick. After a prolonged period of contraction, the manufacturing PMI rose to 50.5, entering expansion territory for the first time in over three years.
Manufacturing output experienced its fastest growth in nearly three-and-a-half years, fueled by increased new orders. While the services sector, the dominant force in the Eurozone economy, continued to expand, its growth slowed slightly compared to July.
Despite the positive economic momentum, the survey also highlighted growing inflationary concerns. Input costs rose at their fastest rate in five months, with service sector cost inflation reaching its highest point since March. Output prices across the bloc also increased at the quickest pace in four months.
This development could cause concern for the European Central Bank (ECB), which is aiming to curb inflation through slower wage growth. However, a stabilizing trend in service sector selling prices offers some relief.
The strong economic activity translated into increased hiring, with job creation accelerating to its fastest pace since June 2024. This employment growth was primarily concentrated in the services sector, while the manufacturing sector continued to experience job losses.
Germany, Europe’s largest economy, registered its fastest growth since March, while France’s economic downturn eased. The future direction of ECB interest rates remains uncertain, with a Reuters poll suggesting a potential rate cut in December, but lacking a clear majority consensus on the final year-end deposit rate.
