BRUSSELS — Euro zone business activity expanded at its fastest pace in eight months during July, supported by a recovery in services and continued manufacturing output growth, according to the latest S&P Global purchasing managers’ survey.
The final Eurozone Composite PMI Output Index rose to 52.0 from 50.0 in June. Readings above 50 indicate expansion, making the July result a clear improvement after several months of weak or contracting activity. The services PMI climbed to 51.7, a five-month high, while manufacturing remained in expansion territory.
New orders increased at the fastest rate since November, suggesting that demand improved alongside output. Employment stabilized after six consecutive months of job losses, and business confidence rose to a five-month high, although it remained subdued by geopolitical risk and uncertainty surrounding energy costs.
The regional picture was uneven. Germany, Italy and Spain recorded growth, with Spain showing particularly strong service-sector momentum. France remained in modest contraction, illustrating the different speeds at which the euro zone’s largest economies are responding to changing demand and financial conditions.
The stronger PMI data offer evidence that the region may be regaining momentum, but inflation remains a major constraint. Eurostat estimated annual euro area inflation at 2.9% in July, up from 2.8% in June. Energy inflation was particularly high, while services prices also continued to rise above the European Central Bank’s target-consistent pace.
That combination creates a difficult policy environment. Stronger activity reduces the urgency for economic support, while persistent inflation strengthens the argument for tighter monetary conditions. Any additional interest-rate increase, however, could weigh on household spending, business investment and credit demand just as the recovery begins to broaden.
External risks also remain significant. Export orders were weak, and renewed conflict or disruption in the Middle East could raise energy and transport costs. Europe remains especially sensitive to changes in imported energy prices, which can quickly affect industrial margins and consumer purchasing power.
The July PMI therefore marks an important improvement rather than a complete resolution of the euro zone’s economic challenges. Services are growing again, manufacturing output is holding up and labor-market conditions have stabilized. The durability of the recovery will depend on whether demand continues to strengthen without triggering another acceleration in inflation.
