Eurozone PMI Composite Hits Nine-Month High, Reinforces ECB Hawkish Bias

Eurozone private-sector growth strengthened slightly in August, with PMI Composite Output edging from 52.0 to 52.1, its highest in nine months. PMI Manufacturing rose more clearly from 51.9 to 52.8, while PMI Manufacturing Output increased from 52.9 to 53.4, marking its strongest expansion in four-and-a-half years. PMI Services Business Activity was unchanged at 51.7, keeping services in moderate expansion. S&P Global said the readings were consistent with roughly 0.3% q/q GDP growth in Q3.

Manufacturing was the standout, helped by precautionary inventory building amid Middle East supply disruptions and stronger demand for AI-related technology and defence equipment. Germany benefited particularly strongly: PMI Manufacturing rose from 52.2 to 54.1, while PMI Manufacturing Output jumped from 54.7 to 56.7, a 55-month high. But services remained weak, falling from 49.8 to 48.5. France showed a similar split in reverse form: PMI Manufacturing improved from 49.8 to 51.5, but PMI Services fell from 49.6 to 48.4, pulling PMI Composite Output down from 49.4 to 48.8.

Growth outside France and Germany was firmer, with tourism helping services activity across rest of region expand at its fastest pace in more than three years. There were also encouraging signs from employment, with companies returning to hiring for first time this year. Price pressures moved in a more favorable direction. Services selling-price inflation eased to joint-lowest pace this year, while goods-price inflation moderated further.

For ECB, August PMIs reinforce a relatively hawkish growth-inflation mix. Activity is expanding at a solid pace, manufacturing momentum is strengthening, and hiring has resumed. Easing selling-price pressures are welcome, but inflation remains elevated by historical standards. S&P Global concluded that a hawkish bias is likely to be maintained, with further near-term rate hikes still possible if stronger activity prevents inflation from cooling sufficiently.

Data Summary

Key Takeaways

• Eurozone PMI Composite Output edged from 52.0 to 52.1 in August, reaching a nine-month high and signaling continued solid private-sector expansion.
• Manufacturing was main driver. PMI Manufacturing rose from 51.9 to 52.8, while PMI Manufacturing Output climbed from 52.9 to 53.4, strongest in four-and-a-half years.
• PMI Services Business Activity held at 51.7, keeping services in expansion without further acceleration.
• S&P Global said survey was consistent with around 0.3% q/q GDP growth in Q3.
• Germany showed a sharp sector split. Manufacturing strengthened strongly, but services fell deeper into contraction at 48.5.
• France remained weak overall, with PMI Composite Output dropping to 48.8 and services at 48.4, even as manufacturing returned to expansion.
• Growth outside France and Germany was stronger, with tourism helping services activity reach its fastest pace in more than three years.
• Employment improved, with firms adding staff for first time this year.
• Price pressures eased, particularly in services selling prices, but inflation remained elevated by historical standards.
• For ECB, resilient growth, stronger manufacturing and renewed hiring reinforce a hawkish bias, even as softer selling-price inflation provides some relief.

Full Eurozone PMI flash release here.