Eurozone business activity expanded in August, driven by a surge in the services sector, particularly in France due to the Olympic Games, according to preliminary Purchasing Managers’ Index (PMI) surveys. The Composite PMI Index for the eurozone rose to 51.2, marking the sixth consecutive expansion and the fastest in three months. However, manufacturing continued to contract across the eurozone, with Germany’s private sector economy worsening, raising concerns about a potential recession.
The Services PMI Business Activity Index climbed to 53.3, the strongest growth in four months, largely driven by France where services activity reached its highest level since May 2022. However, experts believe this boost may be temporary, as evidenced by weakening employment conditions and shrinking work backlogs. Demand signals remain weak, with new orders decreasing for the third consecutive month.
Despite the challenges, inflationary pressures eased slightly, offering some relief. In Germany, the private sector contracted at its fastest pace in five months, with the services sector’s expansion decelerating. The manufacturing sector saw its 27th consecutive month of contraction, with no signs of improvement on the horizon. Pessimism among German businesses regarding growth prospects for the future continues to grow, with concerns over economic conditions and geopolitical uncertainties.
While anticipated ECB interest rate cuts may provide some relief, experts warn that the underlying fundamentals of the eurozone economy may be shakier than they appear. The struggles in the manufacturing sector are starting to spill over into the services sector, raising the likelihood of a second consecutive quarter of negative growth in Germany.
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