Eurozone August flash services PMI 53.3 vs 51.9 expected

• Prior 51.9
• Manufacturing PMI 45.6 vs 45.8 expected
• Prior 45.8
• Composite PMI 51.2 vs 50.1 expected
• Prior 50.2

The beat in the French services sector is arguably what is driving the business expansion this month. So, again the caveat is that it is likely a one-off owing to the Paris Olympics. As such, the momentum might not carry on for the months ahead. Meanwhile, the slowing picture in the German economy is certainly something to be wary about as manufacturing conditions overall continue to suffer. HCOB notes that:

“At first glance, this looks like a pleasant surprise: activity in the Eurozone picked up in August. But a closer look at the
numbers reveals that the underlying fundamentals might be shakier than they appear. The boost largely comes from a surge
in services activity in France, with the Business Activity Index jumping by almost five points, likely linked to the buzz
surrounding the Olympic Games in Paris. It’s doubtful this momentum will carry over into the coming months, however.
Meanwhile, the overall pace of growth in the services sector has slowed down in Germany, and the eurozone’s
manufacturing sector remains in rapid decline.

“It’s a tale of two worlds. The manufacturing sector remains mired in recession, while the services sector still appears to be
growing at a decent clip. But with the temporary Olympic boost in France fading and signs of waning confidence across the
Eurozone’s service industry, it’s likely only a matter of time before the struggles of the manufacturing sector start weighing
on services too.

“Manufacturers raised their selling prices for the first time since April 2023, a response to three straight months of rising input
costs. Despite weakening demand, firms seem to have had little choice but to pass on some of these higher costs to
customers. On the bright side, this suggests there’s still some pricing power in the market.

“The ECB might find some reassurance in the latest price indices. Input costs in the services sector, which are closely
watched by monetary authorities due to the significant role wages play, rose at the slowest pace in 40 months. So, even
though output prices in the service sector climbed faster than they did in July, the easing of cost pressures strengthens the
case for an interest rate cut at the ECB’s September meeting.”

This article was written by Justin Low at www.forexlive.com.