Key facts
- Euro zone business activity returned to growth in July for the first time in four months.
- The S&P Global Flash Euro zone Composite PMI Output Index rose to 51.9 in July, exceeding expectations.
- New orders grew for the first time since February, indicating increased demand.
- Both manufacturing and services sectors contributed to the output rebound.
- Input cost inflation and output price inflation slowed, potentially easing pressure on the European Central Bank.
- Germany's private sector returned to growth, while France's output decline softened.
Euro zone business activity returned to growth in July for the first time in four months, with the S&P Global Flash Euro zone Composite PMI Output Index rising to 51.9 from 50.0 in June. This exceeded expectations of a modest rise to 50.3 and marks the highest reading in five months. A reading above 50.0 signals an expansion in activity.
New orders grew for the first time since February, with the pace of expansion being the fastest since April 2023. Both manufacturing and services contributed to the rebound. Manufacturing output growth hit a 52-month high, and the headline factory PMI rose to 52.0 from 51.4. Services activity recovered to a five-month high of 51.6, up from 49.4, snapping three months of contraction.
Germany, the euro zone's largest economy, returned to growth for the first time in four months. France's output continued to fall, though marginally. Staffing levels rose, marking a shift after months of job shedding, though manufacturing employment cuts tempered gains in services.
The rate of overall input cost inflation eased to its lowest since February, although pressures remained sharp. Output price inflation also slowed. This easing may reduce pressure on the European Central Bank, which left its key deposit rate at 2.25% on Thursday, with a Reuters poll suggesting a 25 basis point hike in September. The euro zone economy contracted 0.2% in the first quarter, and the July PMI data suggests the bloc may be gaining momentum heading into the second half of the year, despite risks.