A recent survey showed that Euro zone business activity received a boost from France hosting the Olympic Games last month. However, the malaise in the bloc is expected to return once the Paralympics wraps up, as demand remains weak.
HCOB's composite Purchasing Managers' Index for countries in the currency union, compiled by S&P Global, jumped to 51.0 in August from July's 50.2. While this exceeded the 50 mark separating growth from contraction for a sixth consecutive month, it was slightly below a preliminary estimate of 51.2.
Cyrus de la Rubia at Hamburg Commercial Bank commented, "The positive vibes from the Games and the ongoing Paralympics might carry through into September in part, but we expect the slowdown in growth, which started in May, to likely resume in the coming months."
Overall demand in the 20-member currency union fell for a third month, indicating weakness ahead. The composite new business index was slightly below the 50 threshold at 49.1, but was an improvement from July's 49.0.
The final PMI for the services industry saw a significant increase to 52.9 from 51.9, offsetting a continued contraction in the manufacturing sector. However, optimism about the future among services firms decreased, with the business expectations index falling to 59.1 from 60.4 - its lowest reading this year.
Analysis:
The survey results indicate a temporary boost in Euro zone business activity due to the Olympics, but the underlying weakness in demand is likely to resurface once the Paralympics conclude. This could lead to a slowdown in growth in the coming months, as overall demand in the currency union has been declining. However, the services industry showed some resilience, with an increase in the PMI. Despite this, businesses are less optimistic about the future, which could impact investment decisions and economic growth in the Euro zone.
