Eurozone business activity accelerated to an eight-month high in July as the services sector returned to growth for the first time since March, S&P Global's PMI survey showed. Germany swung back into expansion alongside the rebound, but France stayed in contraction and renewed fighting in the Middle East has clouded the outlook.
Services rebound drives composite PMI to eight-month high
The S&P Global Eurozone Composite PMI climbed to 52.0 in July from 50.0 in June, its highest level in eight months and the first return to expansion since March. The final reading came in a tad above a preliminary estimate of 51.9.
The Services PMI also rose to 51.7 from 49.4, a five-month high. New orders across the bloc grew at their fastest pace since November. Employment also stabilised, ending a six-month run of job losses.
Germany returns to growth, France still lags
Germany's Composite PMI returned to expansion at 51.3, up from 49.5, its first growth reading since March. Its services PMI rose to 49.8 from 48.6, still below the 50 growth threshold. New business returned to growth after four months of decline, the first pick-up in demand since the Middle East war began in late February, said Phil Smith, economics associate director at S&P Global Market Intelligence.
Smith said the sector looked "well positioned to return to growth in the third quarter". France remained the outlier, with private-sector activity still contracting, though the pace of decline eased further.
Inflation eases, keeping a September ECB move in view
Input cost inflation across the bloc eased to a five-month low. Output price inflation also slipped to its softest pace since March. Even so, eurozone inflation rose to 2.9% in July from 2.8% in June, official data showed.
A Reuters poll last month predicted the ECB would lift its key deposit rate in September. S&P Global said the survey is consistent with around 0.3% quarterly GDP growth.
Middle East conflict keeps risks two-sided
Much of July's improvement followed a temporary easing in oil prices and tensions in June, but the conflict has intensified again since, reviving risks to both growth and inflation. In the services sector, business confidence climbed to a five-month high, yet stayed below levels seen before the U.S.-Israeli attack on Iran in late February. The moderation in price gauges could give the ECB room to delay further tightening, but policymakers are unlikely to grow complacent given the renewed uncertainty in energy markets.
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