The eurozone economy continued to expand at a broadly steady pace in August. The rate of increase edged down to a 19-month low, however, mainly due to a weaker rate of expansion in Germany.
The final Markit Eurozone PMI® Composite Output Index posted 52.9 in August, down from 53.2 in July and below the earlier flash estimate of 53.3. The rate of growth in new order inflows was also the weakest in just over one-and-half years.
August data indicated that rates of output expansion ticked lower in both the manufacturing and service sectors. Manufacturing production rose at the slowest pace since May, while the expansion in service sector business activity was the joint weakest since the start of 2015.
National PMI data indicated that the slowdown was mainly due to weaker economic growth in Germany, as output in the eurozone’s largest nation rose at the slowest pace for 15 months. This was still sufficient to see Germany outperform both France and Italy, despite growth in France accelerating to a ten-month high. The pace of increase in Italy slipped to a three-month low. Spain and Ireland were the brightest spots in the growth picture, situated at the top of the ranking table and both seeing faster expansions than in July.
There were, however, signs that the longest period of sustained job creation in the region over the past eight years may be cooling. The rate of increase in employment eased to a three-month low, as trends in hiring slowed at manufacturers and service providers alike. Employment increased at slower rates in Germany, Italy and Spain, while job losses were signalled by France.
Inflationary pressures remained subdued during August. Output charges declined for the eleventh month running, as price discounting in France and Italy offset increases in Germany, Spain and Ireland. Although input costs in the eurozone rose for the fifth month in a row, the rate of increase was the slowest since the opening month of that sequence. Cost inflation eased across the ‘big three nations, but picked up in Spain and Ireland.
The rate of expansion in eurozone service sector business activity ticked lower in August. At 52.8, the final Markit Eurozone PMI® Services Business Activity Index was marginally below July’s 52.9 and weaker than the earlier flash estimate. The latest reading nonetheless pointed to a moderate and steady pace of output growth.
The slowdown was centred on Germany, where output growth slipped to its weakest pace in over three years. France, Italy, Spain and Ireland all saw rates of increase accelerate since July.
Underlying the latest expansion of eurozone services activity was further growth of incoming new work. However, inflows of new business rose at the slowest pace for 19 months, mainly due to a weaker increase in Germany and, to a lesser extent, Ireland. In contrast, France, Italy and Spain all registered faster expansions in new work.
The moderations in growth of new business and output during August were also reflected in the trend in eurozone service providers’ business confidence†. The overall degree of positive sentiment dipped to a 20-month low, with optimism easing in Germany, France and Spain. Eurozone service providers saw a further increase in staffing levels during August.
Job creation has been recorded in each month since November 2014, although the latest increase was the weakest for three months. Staffing levels rose in Germany, Italy, Spain and Ireland, but only the latter saw a faster rate of increase. France posted job losses for the second time in the three months.
August’s survey showed a weakening in the rate of cost inflation faced by service providers. Average input prices increased at the slowest pace since April and one that was below the historical series trend. Cost increases slowed in Germany, France and Italy, but accelerated in Spain and Ireland.
Average charges fell marginally during August, led by reductions in France and Italy. In contrast, German, Spanish and Irish service providers saw their average selling prices increases.
Chris Williamson, Chief Business Economist at IHS Markit said:
It’s clearly disappointing to see the final PMI has come in weaker than the initial flash estimate. While the overall picture is one of steady but sluggish 0.3% growth in the third quarter, the revised figures indicate that the economy is losing rather than gaining momentum.