Eurozone business activity rose for the first time in 4 months, according to an S&P Global survey released on Friday.
The eurozone private sector returned to growth in July, it said, adding that data from its Purchasing Managers’ Index (PMI) had risen from 50.0 to 51.9 this month.
A PMI below 50 indicates that the manufacturing sector is in contraction.
S&P Global said that despite inflationary pressures easing (but remaining pronounced), a “higher output reflected a renewed increase in new orders, with staffing levels also up accordingly.”
Economies in France and Germany have been hit amid the war in the Middle East.
Last month, companies in Germany, Europe’s largest economy, were preparing to reduce staffing at the steepest pace since the pandemic.
Around the same time, French firms also said they were planning to reduce hiring and investment activities over the coming 12 months.
However, on July 24, S&P Global said that companies in the Eurozone were more confident in the year-ahead outlook for business activity, but sentiment remained lower than before the outbreak of war in the Middle East.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said that July is seeing a welcome revival of economic activity in the eurozone, but a “volatile geopolitical environment means it remains to be seen if the good news can last.”
He said that after a largely stagnant second quarter, there has been something of a “bounce in demand” during July, which he said represents the best performance since the outbreak of the war in the Middle East.
“Germany is reporting growth for the first time in four months, France’s downturn has softened to the weakest since February, and the rest of the region as a whole is growing at a pace not seen since last November as its order book inflows jumped to a degree not beaten in over four years,” he said.
With the U.S.–Iran conflict, he said there’s a “danger that the economy could relapse if inflationary pressures intensify again and supply disruptions, notably for energy, derail this nascent upturn.”
Analysts at financial institution ING wrote in a July 24 note that it was “welcome news for the eurozone economy”; however, the escalating conflict in the Middle East “casts significant doubt on hopes of a meaningful acceleration in growth.”
On Friday, Iran
a series of drone and missile attacks against U.S. military facilities in Kuwait, Bahrain, and Jordan, hours after American forces completed the 13th consecutive night of strikes aimed at degrading Tehran’s ability to threaten commercial shipping in the Strait of Hormuz.
“It’s not just sentiment that improved, but also output, according to the survey,” ING Netherlands Chief Economist Bert Colijn said.
“The improvements were broad-based, with both manufacturing and services gaining momentum. New orders increased as did job creation, albeit modestly. Both input and selling price inflation eased in July, which reflects ongoing moderation after inflation peaked in the spring.”
The European Central Bank kept interest rates unchanged on July 23 but held the door open to another increase in September, as renewed conflict in the Middle East has unsettled energy costs.
Oil prices pulled back on Friday after jumping above $100 per barrel in the previous session. Still, they remained on course for substantial weekly gains as traders assessed the threat to two of the world’s most important energy-shipping routes.
Brent crude futures fell $3.44, or 3.4 percent, to $97.59 per barrel at about 8:22 a.m. ET.
“This makes the July PMI sound almost too good to be true. As uncertainty returns, renewed (though mild) stagflationary pressures are likely to weigh on the eurozone economy over summer,” said Colijn.
Reuters and Tom Ozimek contributed to this report.
