Euro zone business activity accelerates to fastest pace this year

Euro zone business activity expanded at its quickest pace this year in August, according to a closely watched survey. The S&P Global Flash Euro zone Composite PMI Output Index rose to 52.1 from July's 52.0, marking the highest reading since November and surpassing market expectations of 51.7. A reading above 50 signals expansion.

The uptick was underpinned by the strongest rise in new orders in 40 months. Export orders, including intra-euro zone trade, increased for the first time since Russia's invasion of Ukraine in February 2022. The manufacturing sector led the charge, with its PMI climbing to a more than four-year high of 52.8, up from 51.9. Output growth in the sector was the strongest in 54 months.

Services activity held steady at 51.7, matching July's rebound and defying forecasts of a slowdown. Overall employment rose for the first time this year, as manufacturers resumed hiring after more than three years, while services firms added workers at the fastest pace in eight months.

Price pressures continued to ease, with input cost inflation at a six-month low and output price inflation cooling to a five-month low. Despite the encouraging data, business sentiment about the year-ahead outlook remained below the series average.

Economists noted that the solid growth, combined with a return to hiring and still-elevated inflation, could keep the European Central Bank cautious. A separate poll last week suggested the ECB will deliver its second rate hike of the year next month.