Eurozone August business activity gets Olympic boost, PMI shows By Reuters

By Jonathan Cable

LONDON (Reuters) – Economic activity in the euro zone got a boost from France hosting the Olympic Games last month, but a survey suggests the euro zone is likely to return to a slump once the Paralympics end as demand remains weak.

The HCOB composite purchasing managers’ index for countries in the monetary union, compiled by S&P Global and seen as a good indicator of overall economic health, rose to 51.0 in August from 50.2 in July.

This meant that the 50 percent threshold between growth and contraction was exceeded for the sixth month in a row, but it remained slightly below the preliminary estimate of 51.2.

“The Olympics-led rise in the eurozone composite PMI in August masks the underlying picture that the bloc’s current growth momentum is weak,” said Rory Fennessy of Oxford Economics.

“This is even more reason for the ECB to cut rates on September 12.”

The European Central Bank will cut its deposit rate twice more this year, in September and December, according to a majority of more than 80% of economists polled by Reuters last month.

France’s services sector posted its strongest growth in more than two years in August, but Germany’s growth slowed for the third month in a row, a further sign that Europe’s largest economy is losing steam.

Sentiment among German exporters is becoming alarmingly gloomy, trade lobby group BGA reported on Wednesday, while economic institute IfW Kiel said the economy will shrink by 0.1% this year.

In Britain, outside the European Union, services grew at their fastest pace since April last month and price pressures eased. The PMI pointed to a more favourable inflation outlook and a stabilisation of the economy after the July election.

The Bank of England will cut interest rates just once more this year, in November, a majority of economists in a Reuters poll said, with British inflation expected to remain above target.

Overall demand in the 20-member currency union fell for the third month in a row, signaling weakness ahead. The composite index for new businesses was below the 50 threshold at 49.1, although slightly higher than July’s 49.0.

The final PMI for the bloc’s key services sector rose to 52.9 from 51.9, offsetting a continued contraction in the manufacturing sector.

But optimism about the year ahead waned among service companies, with the business expectations index falling from 60.4 to 59.1, the lowest reading this year.