Eurozone business activity picks up in August but still muted

Business activity in the eurozone picked up in August but was still muted as the manufacturing sector remained in contraction territory, according to preliminary figures released on Thursday.

IHS Markit's flash composite purchasing managers' index - which measures activity in both the manufacturing and services sectors - rose to 51.8 from 51.5 in July, beating expectations for a reading of 51.2. A reading above 50 signals growth.

The manufacturing PMI printed at 47.0 this month from 46.5 in July, ahead of expectations for a reading of 46.2.

The services index rose to 53.4 from 53.2 the previous month, versus expectations of 53.0.

Andrew Harker, associate director at IHS Markit, said: "The dynamics of the eurozone economy were little changed in August, with solid growth in services continuing to hold the wider economy’s head above water despite ongoing manufacturing decline. While the rate of overall expansion ticked up, we’re still looking at GDP only rising by between 0.1% and 0.2%, based on the PMI data for the third quarter so far.

"The lack of a quick rebound from the recent economic slowdown has impacted firms’ confidence, with sentiment the lowest in over six years. It appears that companies are braced for a sustained period of weakness, and as a result are showing greater reluctance to take on additional staff."

"France was a relative bright spot in August, seeing manufacturing return to growth alongside a further solid expansion of services activity. The same can’t be said for Germany, however, where new orders fell to the greatest extent in over six years and firms were pessimistic around the future path for activity. The risk remains, therefore, that the euro area’s largest economy will have fallen into technical recession in the third quarter."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the composite PMI remains locked in a tight range between 51 and 52, consistent with stable GDP growth of around 1%.

"In short, the main story is unchanged. Manufacturing is still suffering, but services- effectively the domestic economy - is still relatively robust. New orders and output growth in manufacturing remain soft, primarily due to weakness in Germany, which dragged employment in this sector down for the fourth month running. By contrast, the services sector is more robust across the board. Similarly in terms of outstanding work, backlogs and purchase activity dwindling in manufacturing while capacity pressures remain more pronounced in services."