Eurozone business activity hits 2026 high as manufacturing surges

Private-sector business activity in the eurozone unexpectedly improved in August, reaching its fastest pace since November, as the manufacturing sector delivered its strongest expansion in more than four years despite headwinds from the Middle East conflict and elevated energy costs.

The S&P Global Flash Eurozone Composite PMI Output Index rose to 52.1 from 52.0 in July, beating a Reuters poll forecast of 51.7, according to data released on Friday. The manufacturing PMI climbed to 52.8 from 51.9, a more than four-year high, while services activity held steady at 51.7.globalbankingandfinance+3

Manufacturing Leads the Way

Germany was the primary engine of the manufacturing recovery, with production rising at its fastest pace since January 2022. Chris Williamson, chief business economist at S&P Global Market Intelligence, attributed the strength to multiple factors.tradingview+1

"We are again seeing reports of precautionary stock building helping support the goods-producing sector amid the ongoing supply chain disruptions emanating out of the Middle East," Williamson said. "However, there are also encouraging signs of rising demand for AI-related tech goods and rising equipment demand thanks to higher defence spending, notably helping Germany in particular achieve increasingly impressive production gains."businesstimes+1

New orders rose at their fastest rate in 40 months, while export orders — including intra-eurozone trade — returned to growth for the first time since Russia's invasion of Ukraine in February 2022. Employment rose for the first time in 2026, as manufacturers resumed hiring after more than three years of monthly job cuts.investing+3

Uneven Recovery and ECB Outlook

The recovery remained uneven across the bloc. While Germany expanded modestly, France sank deeper into contraction as heatwaves hit its dominant services sector. Price pressures continued to ease, with input cost growth at its slowest in six months.marketscreener+3

Still, with inflation at 2.9 percent in July — well above the European Central Bank's 2 percent target — and the PMI data pointing to solid third-quarter GDP growth, the ECB is expected to deliver a second rate hike of the year in September. Bert Colijn at ING noted that "with oil prices above $90 per barrel again and interest rates having repriced higher in recent weeks, the factors slowing growth and pushing up inflation for the months ahead are clear."businesstimes+1

Despite the encouraging current data, firms remained less optimistic about the year-ahead outlook, with sentiment staying below the long-term series average.globalbankingandfinance+1