Euro zone business activity has grown at its fastest pace this year in August, buoyed by stronger new orders — particularly in manufacturing — and a return to export growth, according to a survey which also showed easing price pressures.
That suggests the economy has remained resilient this quarter despite the Middle East conflict, after expanding 0.4% in the second quarter.
The S&P Global Flash Euro zone Composite PMI Output Index has risen to 52.1 this month from July's 52.0, its highest since November and above a Reuters poll expectation of 51.7. Readings above 50 indicate growth.
Final data have come out better than initial flash readings for the past five months.
New orders, a key gauge of demand, have risen at their fastest rate in 40 months, while export orders, including intra-euro zone trade, have increased for the first time since Russia invaded Ukraine in February 2022.
“The manufacturing sector is again the star performer ... with the services economy providing a supporting role, notching up another month of decent growth after the malaise seen in the second quarter," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
"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 ... However, there are also encouraging signs of rising demand for AI-related tech goods and rising equipment demand thanks to higher defense spending, notably helping Germany in particular achieve increasingly impressive production gains."
The factory PMI has risen to a more than four-year high of 52.8 from 51.9, beating the poll estimate of 51.8. Output growth has hit its strongest level in 54 months.
Services activity has held steady after July's rebound, with the PMI unchanged at 51.7, defying forecasts for a slowdown.
Overall employment has risen for the first time this year as manufacturers resumed hiring after more than three years, while services employment has grown at the fastest pace in eight months.
Price pressures, although still high, have continued to ease, with input cost growth at its slowest in six months and output price inflation easing to a five-month low.
"However, with the flash PMI signaling 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," Williamson added.
The European Central Bank will deliver its second rate hike of this year next month, a Reuters poll showed last week.
Despite encouraging data, firms were less optimistic about the year-ahead outlook and sentiment remained lower than the series average.
