The euro area economy continued to expand at a steady pace in August. At 53.3, up from 53.2 in July, the flash estimate of the Markit Eurozone PMI® inched up to a seven-month high. With the index only slightly above the average seen throughout the year to date, growth in the third quarter is likely to be similar to that seen in the first half of the year.
A slowing in manufacturing order book growth and a dip in services optimism led to a weakened rate of hiring and suggested that growth could fade in coming months, however. Inflationary pressures meanwhile remained muted.
The August survey saw growth of output accelerate marginally in both manufacturing and services, with the former recording the slightly stronger pace of expansion.
Greater variation was seen in terms of order books, however, where manufacturing saw a slowing in demand. Whereas inflows of new business in the service sector rose at the fastest rate for four months, new orders received by factories grew at the slowest rate for one-and-a-half years.
Manufacturers worked down their inventories in the face of weaker demand growth, with warehouse stocks of finished goods falling at the fastest rate for six years.
The future strength of demand in the service sector was meanwhile called into question as business expectations about the year ahead among service providers fell to its lowest since December 2014.
There were also signs that the strongest spell of job creation seen in the region over the past five years may be cooling. Although employment rose again in August, the rate of increase slowed to a three month low, hit by weaker hiring trends in both manufacturing and services.
Inflationary pressures remained muted. Although input costs rose for the fifth month in a row, the rise was the smallest since April. Average selling prices meanwhile fell again, dropping at a slightly greater rate than July, continuing the trend of falling prices seen over much of the past five years.
By country, an upturn in the rate of growth to the highest since last October put France on course for its best quarter of growth so far this year. France nevertheless continued to trail behind Germany in terms of the overall pace of expansion, despite the latter seeing growth falter from July’s seven-month high. German expansion in the third quarter so far is running slightly ahead of the pace seen over the first half of the year, acting as a key engine of the eurozone’s overall expansion.
The rest of the eurozone excluding Germany and France registered further robust overall growth in August, albeit at one of the weakest rates of expansion seen over the past year-and-a-half.