Private sector output in the euro area crossed into expansion territory in July as the services sector bounced back and the manufacturing sector continued to see growth amid a further cooling of inflationary pressures.
The seasonally adjusted S&P Global Eurozone Composite PMI Output Index climbed to an eight-month high of 52 from the neutral 50 threshold in June, final data from S&P Global showed Wednesday. The latest reading sits above the flash estimate of 51.9.
Business activity in the services sector expanded in July, ending three months of decline, with the PMI rising to 51.7 from the prior month's 49.4, against the initial reading of 51.6. The improvement was mainly driven by stronger demand conditions and a solid increase in sales.
Germany's private sector output increased for the first time since March, while the downturn in France eased from the previous month. Meanwhile, Italy and Spain logged more robust growth rates.
"July's final PMI adds to a picture of encouraging resilience of the eurozone economy amid the ongoing conflict in the Middle East, but also underscores how the business climate is being steered by the changing geopolitical landscape. A rise in the headline output index means the survey is signalling quarterly GDP growth of 0.3%, importantly reflecting an increasingly broad-based upturn," said S&P Global Market Intelligence Chief Business Economist Chris Williamson. "July saw the first significant increase in service sector activity since the outbreak of the war, adding to the sunnier summer picture from manufacturing, which has reported the largest increase in production for over four years."
Business confidence reached a five-month high in July on the back of an improvement in demand conditions, with companies' growth outlook over the next 12 months brightening for the third straight month. Confidence, however, remained below the level observed just before the war in the Middle East began.
"However, these improvements came on the tailwind of June's lower oil prices and easing tensions in the Middle East. With the conflict having since flared up again, we are seeing renewed downside risks to growth and upside risks to already-elevated inflation," Williamson noted. "The latter puts policymakers in more hawkish decision-making stance, though the marked drop in the PMI price gauges potentially provides a window for further rate hikes to be delayed until the outlook for inflation becomes clearer."
