Eurozone factory activity at four-year high

Eurozone manufacturing activity grew at its fastest pace in more than four years in August, as new orders and factory output strengthened, according to a survey from S&P Global. The Eurozone Manufacturing Purchasing Managers' Index (PMI) rose to 52.7 in August from 51.9 in July, its highest reading since May 2022, as reported by The Economic Times and Euronext Markets. The reading came in just below a preliminary estimate of 52.8.

A PMI reading above 50 indicates expansion in manufacturing activity.

New orders and output drive growth

New orders grew at their sharpest pace since early 2022, with export orders rising for only the second time in four and a half years. Overseas sales were particularly strong in Austria, Germany, and the Netherlands, providing notable support, according to both outlets. The output sub-index climbed to 53.3 from 52.9, reaching a 54-month high. Intermediate goods such as chemicals, metals and electronic components were the biggest driver of production gains.

Joe Hayes, senior principal economist at S&P Global Market Intelligence, said the August PMI report provided the clearest signs yet that the euro zone's industrial economy had shaken off the oil price shock and supply-related disruptions caused by the Middle East war. "Stronger order book growth, in part owing to a recovery in export demand, should give this expansion legs," he added.

Regional divergences

Germany posted its strongest factory growth in over four years, while France contributed to the overall expansion. However, Italy saw its first manufacturing contraction since January, and Spain also recorded a contraction, as reported by The Economic Times and Euronext Markets.

Employment and prices

Manufacturing employment was broadly unchanged in August, ending more than three years of consecutive monthly declines. Input cost inflation eased to a six-month low, though it remained well above levels seen before the Middle East conflict began, according to both outlets. Output price inflation followed a similar pattern, moderating but staying above pre-conflict levels.

Outlook

Manufacturers' confidence improved for a fourth consecutive month, with optimism about the 12-month outlook above the long-term average, as reported by Euronext Markets. Economists polled by Reuters in August expect the European Central Bank to raise interest rates again this month before holding through at least mid-2027, The Economic Times reported. Official data due later on Tuesday were expected to show euro zone inflation at 3.3% in August, up from 2.9% in July, according to the same report.