In August 2024, the euro area services sector saw a notable growth, with the services PMI rising to 52.9, its highest level in three months, from 51.9 in July. The euro area composite output index, which reflects the performance of both the manufacturing and services sectors, also rose to 51.0, its highest level since May, up from 50.2 in the previous month.
These results reflect the continued expansion of the euro area’s private economy for the sixth consecutive month, marking the longest streak of growth in more than two years. Despite this growth, the data showed clear fragility in economic fundamentals, with new orders, employment and business confidence all falling across the euro area. Although input cost inflation fell to its lowest level in 2024, output charges rose significantly, suggesting that inflationary pressures persist despite the decline in costs.
The analysis shows that the rise in economic activity in the euro area was driven entirely by the services sector, which saw its fastest growth in three months. In contrast, the manufacturing sector continued to contract, extending the period of decline in factory output to 17 consecutive months.
France was the main driving force behind this accelerated expansion, with private sector output recording its highest growth rate since May 2022. However, France still trails Spain, which continues to be the best performer among eurozone countries. Ireland and Italy also recorded improved growth rates, while Germany continued to record a decline in private sector activity for the second month in a row.
Overall, despite this expansion, economic challenges remain, reflecting a fragile recovery that will require careful economic policies to support sustainable growth in the coming months.
Eurozone business growth slows: Demand and employment weaken
Despite the acceleration in eurozone output growth in August, HCOB PMI data revealed a slight decline in the volume of new business received by private sector companies. The sharp decline in sales in the manufacturing sector undermined demand, partly offsetting a slight improvement in new orders in the services sector.
Sales also faced challenges from export businesses in August, with data showing new orders from international customers fell at the fastest pace since January. Both manufacturers and service providers saw new export orders weaken in the middle of the third quarter.
Across the euro area private sector, capacity pressures continued to ease, with backlogs of work falling for the 17th consecutive time. The pace of decline in outstanding work was the fastest since February.
For the first time since the start of 2021, the seasonally adjusted HCOB employment index fell below the 50.0 threshold, indicating a decline in the euro area private sector workforce. However, the decline was limited by continued, albeit slower, job creation in the services sector, which partly offset job cuts in manufacturing.
On the other hand, the job cuts coincided with another decline in business confidence, the third in two months. Although euro area companies expect output to grow over the next 12 months, optimism fell to its lowest level since the start of the year.
Meanwhile, the HCOB survey revealed a marked slowdown in input price inflation, with operating costs rising at the weakest pace in 2024 so far and in line with their pre-pandemic average. The services sector saw a marked easing of cost pressures, although prices charged for goods and services in the euro area continued to rise at the fastest pace since April.
Eurozone Purchasing Managers’ Index: How it’s calculated and what it means
The Eurozone Composite Purchasing Managers’ Index is compiled by S&P Global based on survey responses sent to survey panels representing manufacturers and service providers in a number of European countries including Germany, France, Italy, Spain, the Netherlands, Austria, Ireland, and Greece. The survey includes around 5,000 private sector companies, and these companies are classified according to the size of their workforce and the detailed sector, in proportion to their contribution to each country’s GDP. Survey responses are collected in the second half of each month, and trends are measured compared to the previous month.
The diffusion index is calculated by adding the proportion of responses indicating an increase to half the proportion of “unchanged” responses, and the final index expresses the result as a number between 0 and 100. A reading above 50 indicates overall growth compared to the previous month, while a reading below 50 indicates a decline. These indices are subject to seasonal adjustments to ensure they accurately reflect real economic trends.
As for the euro area indices at the manufacturing and services level, they are calculated by weighting the indicators of the different countries using the annual value added of each sector. The main composite figure in this indicator is the composite output index, which is a weighted average combining the industrial output index and the service business activity index. This indicator reflects the state of economic activity at the euro area level as a whole.
It is important to note that the core survey data remain unrevised after publication, however, seasonal adjustment factors may be subject to periodic updates that affect the seasonally adjusted data. The instant data are estimated based on a portion of the final responses.
