Euro-Zone Economy Handed Surprise Boost by Paris Olympics
(Bloomberg) -- The euro-area economy got an unexpectedly strong boost from the Paris Olympics, which propelled private-sector growth to the fastest pace in three months.
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S&P Global’s composite Purchasing Managers’ Index jumped to 51.2 in August from 50.2 in July, exceeding even the most optimistic forecast in a Bloomberg survey of analysts. A gauge for services climbed to the highest level since April, though the region’s manufacturing slump deepened.
Much suggests the Olympic spirit won’t linger — not even in France, where growth momentum picked up sharply this month. Output in Germany, Europe’s largest economy, shrank more than expected.
“It’s a tale of two worlds,” Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said Thursday in a statement. “With the temporary Olympic boost in France fading and signs of waning confidence across the euro zone’s service industry, it’s likely only a matter of time before the struggles of the manufacturing sector start weighing on services too.”
The data suggest the euro zone will struggle to maintain its strong momentum in the first half of the year — despite the sporting surprise. Analysts surveyed by Bloomberg see only a marginal expansion in Germany’s economy across the whole of 2024.
The continent’s underlying weakness has strengthened calls for the European Central Bank to lower interest rates again next month, following an initial reduction in June.
“The recent increase in negative growth risks in the euro area has reinforced the case for a rate cut at the next ECB monetary policy meeting in September — provided that disinflation is indeed on track,” Governing Council member Olli Rehn said this week.
What Bloomberg Economics Says...
“The euro-area composite PMI survey ticked up in August but there are signs that the underlying growth momentum is weaker than the headline suggests. Employment broadly stalled in the currency bloc and activity was temporarily pushed up by the Olympics in France.”
—Ana Andrade, economist. Click here for full REACT
Inflation ticked up in July and output prices across the region’s private sector accelerated in August.
The readings may be evidence of the bumpy road policymakers say leads to their 2% target. Consumer price pressures probably eased again this month, according to an analyst survey ahead of data due next Friday.
The ECB may find some reassurance in input costs in the services sector rising at the slowest pace in 40 months, according to de la Rubia.
Even though output prices climbed faster than they did in July, “the easing of cost pressures strengthens the case for an interest-rate cut at the ECB’s September meeting,” he said.
PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.
PMI data earlier revealed that Japan’s private sector returned to growth, while Australia and India both continued to expand. In the UK, companies saw faster growth and cooler inflation. The US is expected to report a reading well above 50 later Wednesday.
--With assistance from Marilen Martin, Joel Rinneby and Mark Evans.
(Updates with UK data in final paragraph.)
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