Business activity in the private sector was seen picking up steam last month, official data showed and the pace of solid growth continued. However, the global trade war uncertainty was seen keeping optimism in check and further indicating that growth could slow.
Expectations from businesses about activity for the year ahead had dropped to the lowest level in almost two years. This came on rising concern on the impact of trade wars and the political uncertainty.
The steady pace of activity in growth could add to inflationary pressures which could validate the ECB’s plans to end its 2.6 trillion euro bond purchases by the end of this year as announced at the July ECB meeting.
The survey conducted by IHS Markit showed that the composite final PMI which is seen to be an indicator of the economic health nudged higher to 54.5 in August. In July, the composite PMI was at 54.3. The final composite figures were also higher than the flash estimates of 54.4 indicating growth in the private industry.
Chris Williamson, chief economist at IHS Markit said, “The Eurozone PMI shows the recent run of robust growth of business activity, new orders and employment extending into August. However, the expansion is looking increasingly uneven and the business mood has become more unsettled during the summer.”
The data for August was seen validating the fact that the Eurozone economic growth was averaging around 0.4%. However, questions remain if the pace of growth could be maintained. At the outset, the composite PMI numbers were seen to be pretty encouraging.
Putting optimism in check, the trade war uncertainty was seen to have had some effect. The economic policies so far implemented by the U.S. against the EU were relatively small. Still, the concerns of further escalating tensions were seen to put the outlook uncertain.
A separate survey measuring optimism in the business sector was seen slipping from 63.1 in July to 61.6.
The U.S. President Trump said that he was ready to implement new tariffs on China’s imports. This could potentially escalate tensions every further following the most recent tariffs that were applied to over $50 billion of exports from China.
Following the release of the PMI reports, the markets barely nudged. The euro remained subdued against the U.S. dollar which was trading strong for the most part of the week.
The flows into the USD came amid the emerging market crisis which saw world stocks reeling lower.
The PMI report showed that services growth in Germany was supported mostly by domestic demand. Italy’s services sector was seen slowing for the second month in a row in August.
The latest data indicated that growth in Italy could slow in the coming months. The Eurozone economy was seen growing at a pace of 0.4% in the second quarter of the year. Germany was, of course, one of the major contributors to the growth in the Eurozone.
Forward-looking indicators were mostly positive in August. New business and backlogs of orders increased. The employment index was also seen rising to the highest levels since October 2007 at 55.3 in August. This followed July’s print of 54.6.
The monthly PMI reports come just a week before the European Central Bank will be holding its monetary policy meeting. No changes are expected to the interest rates. The central bank is expected to announce its mini-taper to 15 billion euro starting from October.
The central bank earlier announced in June that it would end its bond purchases by the end of December 2018. Interest rates in the Eurozone are expected to remain unchanged until the middle of next year.