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The eurozone’s private sector recorded its fastest growth in three months during August, spurred by a stronger performance in the services sector, according to the latest Hamburg Commercial Bank (HCOB) eurozone composite purchasing managers’ index (PMI). The composite PMI rose to 51.0 from July's 50.2, indicating a slight expansion in economic activity.
This growth was solely attributed to the services sector, which reached a three-month high, while the manufacturing sector continued to struggle, marking its 17th consecutive month of contraction.
France and Spain led the expansion, with Spain achieving the highest composite PMI at 53.5, closely followed by France at 53.1, its strongest performance since May 2022. Ireland and Italy also posted growth, whereas Germany’s private sector activity declined for the second consecutive month, hitting a five-month low at 48.4.
Hamburg Commercial Bank’s chief economist, Dr. Cyrus de la Rubia, noted that the recent Olympic Games in Paris contributed to the positive momentum in France’s services sector, a key driver of the eurozone’s growth in August. However, he raised concerns about the sustainability of this boost, suggesting that the slowdown observed since May might resume in the coming months.
Despite the overall growth, underlying challenges remained. New business orders decreased, and the eurozone’s employment index fell below 50.0 for the first time since 2021, indicating a slight reduction in workforce numbers. Input cost inflation reached its lowest level in 2024, yet businesses raised prices at the fastest pace since April, reflecting ongoing inflationary pressures.
Dr. de la Rubia also mentioned that the European Central Bank (ECB) might feel some relief from the latest price data. Although service providers slightly increased their prices in August, overall cost pressures, particularly those driven by wages, have eased. This could influence the ECB’s upcoming decisions, especially with the recent favorable inflation numbers from Eurostat, potentially justifying a rate cut at the September 12 meeting.
Challenges persisted in export business, with new orders from non-domestic clients falling at the fastest rate since January, particularly affecting the manufacturing sector and overall sales performance. Business confidence in the eurozone continued to decline, marking its lowest point this year, though firms still anticipated a rise in output over the next 12 months, albeit at a slower pace than earlier in the year.
Dr. de la Rubia added that the “Olympic effect” is likely to ensure that the eurozone’s GDP will show growth in the third quarter. He highlighted the geographical breadth of service sector growth, with PMI readings above 50 points in all four major eurozone economies. However, the contrast between the thriving services sector and the manufacturing sector, which remains in recession, underscores the mixed economic conditions across the region.
