Euro zone business activity growing at fastest pace since November, PMIs show

By Indradip Ghosh

Aug 21 (Reuters) - Euro zone business activity ‌is growing at its ​fastest pace this ​year thanks to stronger new orders, particularly in manufacturing, and renewed export growth, according to business surveys which also showed easing price pressures.

Overall, the S&P Global flash PMI surveys for August released on Friday suggested the 21-country economic bloc has ‌remained resilient this quarter despite disruptions from the U.S.-Israeli war on Iran, after expanding 0.4% in the second ⁠quarter.

S&P Global's Flash Euro zone Composite PMI Output Index reached its highest since November this month, edging up to 52.1 from 52.0 in July, beating a Reuters poll ‌forecast of 51.7. Readings above 50 indicate growth.

Final ‌data have come out better than the initial flash readings for the past five months, suggesting the PMI may even be higher by the end of the month.

New orders, a key gauge of demand, have risen at their fastest rate in 40 months, while ​export orders, which include trade between euro zone nations, have increased for the first time since Russia invaded Ukraine in February 2022.

"So far, the impact (of the Iran war) has been far from devastating ... the euro zone economy has been quite resilient so far, and momentum ⁠remains surprisingly decent. The third quarter seems set for a decent GDP growth print again, firmly ignoring current events," said Bert Colijn at ING.

Colijn said, "with oil prices above $90 per barrel ​again and interest rates having repriced higher in recent weeks, the factors slowing growth and pushing up inflation for the months ahead are clear."

The factory PMI has risen this month to a more than four-year high ​of 52.8 from 51.9, beating the poll estimate of 51.8. Output growth has ‌hit its strongest level in 54 months.

Services activity has held steady after July's rebound, with the PMI unchanged at 51.7, defying forecasts for a slowdown.

Activity in Germany, the bloc's largest economy, has expanded modestly as an ⁠upturn in manufacturing offset a sharper decline in services activity.

However, in France, activity has contracted more than expected as recent heatwaves hit the country's dominant services sector.

Separate data for Britain showed growth has hit a four-month high on a bigger-than-expected rise in services activity despite a slowdown in factory expansion.

Employment in the common ⁠currency bloc has risen for the first time this year as manufacturers resumed hiring after more than three years, while services employment has grown at the fastest ​pace in eight months.

Price pressures, although still high, have continued to ease, with input cost growth at its slowest in six months and output price inflation easing to a five-month low.

That was in line with a European Central Bank poll which showed consumers trimmed their inflation expectations for the third month on ‌the trot in July.

But doubts remain about whether inflation, at 2.9% in July, will return to the ECB's 2% target anytime soon.

The ECB is expected to raise rates for a second time this year next ‌month, a Reuters poll of economists forecast last week.

Claus Vistesen at Pantheon Macroeconomics said "near-term risks are tilted towards headline inflation surging past 3% and reaching just ⁠under 4% by the end of the year."

"The net result ‌for the ECB, we think, is that ​the Bank will stay the course and hike by 25bp in September before pausing," he added.

Despite encouraging data, firms were less optimistic about the year-ahead outlook and sentiment remained lower than the series average.

(Reporting by Indradip Ghosh; Editing ‌by Hugh Lawson)

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