You are here

Euro zone business growth unexpectedly accelerates in August: PMI

[LONDON] Euro zone business growth unexpectedly accelerated this month as steeper price cutting drove an increase in new orders and led to firms building up a bigger backlog of work, a survey showed on Friday.

The relatively upbeat survey, one of the earliest monthly economic indicators, suggests the European Central Bank's massive bond-buying programme and a weaker euro may be finally having an impact on growth.

However, signs businesses are cutting prices at a faster rate will be disappointing for the ECB which has been battling to bring inflation - at just 0.2 per cent in July - anywhere near its two per cent target ceiling. "The euro zone economy as a whole is definitely showing a picture of resilience. Seeing those backlogs of work accumulating suggest we should see continued steady growth,"said Rob Dobson, senior economist at survey compiler Markit.

Markit's Composite Flash Purchasing Managers' Index, based on surveys of thousands of companies and seen as a good guide to growth, rose to 54.1 this month from July's 53.9. A Reuters poll had predicted a modest dip to 53.8.

The headline index has been above the 50 level that separates growth from contraction since mid-2013.

Dobson said the PMI pointed to third quarter GDP growth of 0.4 per cent, matching the prediction in a Reuters poll last week.

To spur demand firms have been cutting prices since April 2012 and they did so at a steeper rate this month than in July. The composite output price index fell to 49.5 from 49.8. "The ECB and other policymakers will have a watchful eye on whether these price trends are moving back down towards noflation or deflation," said Markit's Dobson.

But that discounting helped a PMI covering the bloc's dominant service industry rise to 54.3 from 54.0 while a sister index covering manufacturers held steady at July's 52.4. The Reuters poll had respective predictions for 54.0 and 52.2.

A sub-index measuring factory output, which feeds into the composite PMI, nudged up to 53.8 from 53.6.

The euro has lost around 8 per cent on the dollar since the start of the year, knocked by the ECB buying 60 billion euros of bonds a month and the Greek debt crisis, making the bloc's goods cheaper abroad.

That boosted demand for manufactured goods, and the new orders sub-index climbed to 52.7 from 52.2, matching a level set in May and June which had not been seen in over a year.

Service firms meanwhile were able to build up a surfeit of work. The backlogs of work index jumped to 51.4 from 51.1, and has only been higher once - in February - since mid-2011.