Euro zone business activity showed unexpected strength in August, with the composite PMI rising to 51.2 from July’s 50.2, beating forecasts.
This growth was largely driven by a surge in French services linked to the upcoming Paris Olympics, which offset ongoing economic contraction in Germany.
However, the rise in activity may be temporary, with concerns that GDP growth could slow in Q3.
Despite the growth, firms in the euro zone raised prices at a faster pace, leading to caution among European Central Bank (ECB) policymakers.
The unexpected resilience in inflation and steady economic performance could weaken expectations for two more rate cuts by the ECB this year, especially as price pressures remain elevated.
Germany, the euro zone’s largest economy, continued to struggle, with business activity contracting for the second consecutive month.
In contrast, France’s service sector saw a significant boost from Olympic-related activities, which masked the country’s manufacturing sector’s ongoing weakness.