Eurozone Business Activity Climbs to Eight-Month High as Services Recover Despite Geopolitical Uncertainty

Eurozone business activity accelerated to its strongest level in eight months during July, supported by a recovery in the services sector alongside continued improvement in manufacturing.

However, businesses remained cautious as uncertainty surrounding the ongoing conflict in the Middle East continued to weigh on the economic outlook, according to the latest survey.

The S&P Global Eurozone Composite Purchasing Managers' Index (PMI), which measures combined activity across the manufacturing and services sectors, increased to 52.0 in July from 50.0 in June, exceeding the preliminary estimate of 51.9. The reading marked the first return to expansion territory since March, with any figure above 50.0 indicating growth in business activity.

Commenting on the survey results, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“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.”

Demand conditions also improved during the month. Overall new orders recorded their fastest increase since November, driven by a rebound in new business within the services sector and a modest improvement in manufacturing orders. While export demand remained subdued, the decline in overseas orders slowed to its weakest pace in just over a year.

The S&P Global Services PMI rose sharply to 51.7 in July from 49.4 in June, reaching its highest level in five months. The final reading came in slightly above the flash estimate of 51.6, signalling the sector’s first expansion since March after several months of contraction.

The recovery was evident across much of the eurozone. Germany registered its first increase in private-sector output since March, while both Italy and Spain experienced stronger economic growth. Spain emerged as the region’s strongest performer, recording its best level of business activity in more than eighteen months. France remained the only major economy still experiencing contraction, although the pace of decline moderated compared with previous months.

Labour market conditions also showed signs of stabilisation. Employment levels were unchanged in July, ending a six-month sequence of job losses across the eurozone.

Meanwhile, business confidence strengthened to its highest level in five months, although optimism remained below the levels recorded before the US-Israeli attack on Iran in late February.

Inflationary pressures eased slightly during the month. Input cost inflation fell to its lowest level in five months, while output price inflation slowed to its weakest pace since March.

Although both measures remained elevated compared with their long-term survey averages, the moderation offered some relief for consumers and policymakers concerned about persistent price pressures.

Separate official data released last week showed that annual inflation across the eurozone increased to 2.9 per cent in July, up from 2.8 per cent in June. The latest inflation figures strengthened expectations that the European Central Bank (ECB) could implement another interest rate increase, a move that may place additional pressure on consumer demand as households reduce spending.

A Reuters poll conducted last month indicated that the ECB is expected to raise its key deposit rate at its September policy meeting.

By fLEXI tEAM