Eurozone Growth Remains Sluggish in August as Services Slow Despite Manufacturing Rebound

Growth Remains Tenuous Despite Technical Gains

Economic recovery in the eurozone remained fragile in August, with business activity growing modestly but lacking momentum to drive meaningful expansion. The HCOB Eurozone Composite Purchasing Managers’ Index rose to 51.0 in August, its highest point in 12 months, but still reflected only slight expansion.

The manufacturing sector offered a beacon of strength, achieving its strongest output growth in over three years. In contrast, the services sector, vital for the eurozone economy, cooled, with its PMI dipping to 50.5 from July’s 51.0.

New Orders and Employment: Small Steps Forward

For the first time since May 2024, the combined new orders index posted a slight rise, driven by domestic demand, though export orders tumbled at their fastest pace since last March.

Meanwhile, employment growth reached a 14-month high. Hiring accelerated in services, even as factories shed jobs. Input price pressures escalated, however, with cost increases and higher selling prices representing potentially sticky inflation concerns for the ECB.

Country-Level Divergence Highlights Risks

Economic divergence across the bloc remains stark:

• Spain continues to lead growth, despite signs of moderation.
• Italy edged up slightly, with composite activity showing mild improvement.
• Germany saw its expansion slow.
• France’s activity hovered in contraction at a 12-month high of 49.8.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, encapsulated the fragility: “Riding a bike too slowly can make you tip over… the pace is painfully slow.”

Inflation Pressures Persist

Price pressures rose in August, with input costs and business pricing ticking up notably. Core inflation edged to 2.1%, slightly above the ECB’s 2 percent target. The tightening pricing environment could constrain monetary flexibility, even amid sluggish growth.

Complications for the ECB

The mixed data, manufacturing strength versus services slowdowns, complicate the European Central Bank’s policy outlook. Weak services demand, persistent price pressures, and external uncertainties (like trade tensions and political instability in France and Spain) suggest inflation may remain sticky even as growth stalls.

The Bottom Line

Eurozone growth remains underwhelming; manufacturing brightened the economic picture in August, but services slowed and export weakness persisted. The composite PMI rising only to 51.0 signals uneven expansion—posing challenges for the ECB as it navigates inflation risks amid limited momentum.