Eurozone business activity surprisingly strong in August despite rising prices 

There were signs that the upswing may be temporary, with readings flattered by a sharp rise in French services activity due to the Olympics

German business activity contracted for a second consecutive month and by more than expected.

Eurozone business activity showed surprising strength this month despite firms raising prices, a survey showed, potentially weakening expectations for two more rate cuts from the European Central Bank (ECB) this year.

However, there were signs that 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.

Hamburg Commercial Bank’s (HCOB) preliminary composite Purchasing Managers' Index (PMI), compiled by S&P Global, bounced to 51.2 this month from July's 50.2. A reading above 50 indicates growth while a reading below it would indicate a contraction.

That confounded expectations in a Reuters poll for a dip to 50.1 and beat even the most optimistic prediction for 50.8.

Senior European economist with Capital Economics Franziska Palmas said the rising in the flash PMIs this month 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” over the coming months.

"With price pressures still rising, the ECB will remain cautious,” she said.

The rebound came 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 eurozone inflation, a resilient labour market, and steady economic activity could make ECB policymakers hesitant to ease policy much further.

The ECB is due to meet again next month to decide on the future path of interest rates. 

The ECB is due to meet next month to decide on the future path of interest rates. Picture: File

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.

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, business activity accelerated and cost pressures eased to their weakest in more than three years, signalling steady growth momentum going into the second half of 2024.

A PMI covering the eurozone 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.

Optimism among factory managers waned again and they reduced headcount at the fastest rate since November. The manufacturing employment index fell to 46.6 from 47.0.

• Reuters