In August 2024, the Eurozone’s private sector activity saw a modest uplift, with the Composite Purchasing Managers’ Index (PMI) rising to 51.0 points, up from 50.2 points in July. This represents the highest level of private sector activity in the past three months, according to data from Hamburg Commercial Bank (HCOB). The improvement was largely driven by a resurgence in the services sector, spurred by heightened activity related to the Olympic Games in Paris.
Services Sector: A Bright Spot in the Eurozone Economy
The Services PMI increased to 52.0 points in August, compared to 51.9 points in July. This boost was primarily attributed to a surge in new business inflows, particularly from Germany and France. The positive momentum in the services sector reflects an uptick in demand and business activity, which has helped drive the overall Composite PMI higher.
Manufacturing Sector: Persistent Weakness
In contrast, the Manufacturing PMI remained stagnant at 45.8 points, continuing its below-50-point streak for the 26th consecutive month. This sustained underperformance is indicative of ongoing challenges in the manufacturing sector, including declining new orders and a rapidly diminishing backlog of work. Despite the overall improvement in the Composite PMI, the manufacturing sector’s struggles suggest that factory activity is likely to remain underwhelming in the near term.
Economic Outlook and ECB Policy Expectations
While the services sector’s robust performance is expected to continue supporting private sector activity in the short term, several downside risks could impact the overall economic outlook. Deteriorating new orders, weakened employment activities, and declining business confidence are notable concerns. Additionally, the potential for weaker disposable income and reduced business optimism may further complicate the economic landscape.
Given these conditions, it is anticipated that the European Central Bank (ECB) will consider easing its monetary policy in its upcoming meeting. The money market is projecting a 25 basis points reduction in the deposit rate at the ECB’s meeting on September 12, 2024. This expected rate cut would align with the recent trend of slowing wage growth and favorable inflation data, aimed at stimulating economic activity and countering the prevailing economic weaknesses.
Overall, the Eurozone’s Composite PMI has shown a positive shift, driven primarily by the services sector, while the manufacturing sector continues to face significant challenges. The mixed performance across sectors highlights the complexity of the current economic environment, with potential implications for ECB monetary policy and broader economic prospects.
