Euro zone business activity gets boost from Olympics, PMI shows
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[August 22, 2024] By
Jonathan Cable
LONDON (Reuters) -Euro zone business activity showed surprising strength
in August despite firms raising prices, a survey showed, potentially
weakening expectations for two more rate cuts from the European Central
Bank this year.
However there were signs the upswing may be temporary, with readings
flattered by a sharp rise in French services activity due to the Olympic
Games.
German business activity contracted for a second consecutive month and
by more than expected.
"The rise in the flash PMIs for August is not as good as it looks as it
was largely due to a boost from the Paris Olympics and the survey still
points to GDP growth slowing in Q3," said Franziska Palmas at Capital
Economics.
"With price pressures still rising, the ECB will remain cautious."
HCOB's preliminary composite Purchasing Managers' Index, compiled by S&P
Global, bounced to 51.2 this month from July's 50.2, moving away from
the 50 mark separating growth from contraction.
That confounded expectations in a Reuters poll for a dip to 50.1 and
beat even the most optimistic prediction for 50.8.
The rebound in activity came even as firms in the 20-country currency
union raised prices at a faster pace. The composite output prices index
climbed to 52.9 from 52.1.
An unexpected rise in July euro zone inflation, a resilient labor market
and steady economic activity could make ECB policymakers hesitant to
ease policy much further.
Having reduced the deposit rate in June, policymakers paused in July
although a Reuters poll published last week suggested there would be two
additional cuts this year.
The PMI for Germany suggested Europe's largest economy - which
contracted by 0.1% in the second quarter - fared no better going into
the second half of the year.
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A delivery worker unpacks boxes outside a restaurant in Ronda,
Spain, October 27, 2022. REUTERS/Jon Nazca/File Photo
In France overall growth received support from a pick-up in business
due to the Olympics as a sharp upswing in the country's services
sector offset ongoing weakness in manufacturing.
In Britain, outside the European Union, business activity
accelerated and cost pressures eased to their weakest in over three
years, signaling steady growth momentum going into the second half
of 2024.
GOLD FOR SERVICES
A PMI covering the euro zone services industry soared to 53.3 this
month from 51.9, beating a poll prediction for no change.
While some of that activity was driven by services firms reducing
backlogs of work, overall demand improved. The new business index
rose to a three-month high of 51.3 from 50.8.
The manufacturing PMI dipped to an eight-month low of 45.6 from
July's 45.8. Still, an index measuring output nudged up to 45.7 from
45.6.
"Another strong month for services helped to outweigh a softening
manufacturing sector again," said Matthew Landon at J.P. Morgan
Private Bank.
"The 'Olympics effect' makes it harder to unpack the underlying
strength of the economy, but the totality of data seems broadly
consistent with solid but slowing growth for the region."
Optimism among factory managers waned again and they reduced
headcount at the fasted rate since November. The manufacturing
employment index fell to 46.6 from 47.0.
(Reporting by Jonathan Cable; Editing by Christina Fincher)
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