Eurozone PMI data leaves the ECB in its comfort zone

After the announcement at the end of July that goods exports from the European Union to the US will be subject to 15% tariffs, there was some concern regarding the potential impact on the economy. Judging by the initial evidence, the eurozone so far appears to have absorbed the shock without any particular issues.

The August flash purchasing managers’ index (PMI) survey published on 23 August indicated increases in activity and employment, reducing concerns regarding the negative impact of US tariffs on eurozone growth (see Chart 1). Although the composite PMI remains only moderately above the 50 threshold that indicates growth in activity, in August it rose to its highest level in more than a year.

Furthermore, two aspects of the survey were encouraging. The improved new orders inflow was primarily driven by domestic demand and the manufacturing sector, suggesting it will be sustainable despite an uncertain global trade outlook. Furthermore, Germany's economic recovery is gaining momentum and it is no longer a drag on the rest of the eurozone (see Chart 2).

The improving outlook in Germany, and consequently in the whole eurozone, reflects several factors. These likely include increased confidence stemming from the new German government's plans for a strong fiscal expansion, the delayed effects of the ECB's interest rate cutting cycle that started in June 2024, and greater clarity on US trade policy following the uncertainties of recent months. 

The PMI survey also indicated greater upward pressure on input prices than in recent months in both the manufacturing and services sectors. These pressures have not yet impacted the prices charged by firms, which remain consistent with an inflation rate close to the ECB's 2% target. The risk that inflation will fall below the target for a sustained period has declined.

In conclusion, the August PMI data suggest that the moderate growth trend in the eurozone underway since early 2024 will likely continue, supported by encouraging signals from Germany and the lagged effects of the ECB’s prior monetary policy easing. Consumer price pressures remain consistent with an inflation rate in line with the ECB's 2% target. 

A single data release will never determine the ECB Governing Council's monetary policy decisions or substitute for its broad-based analysis of the outlook. However, the August flash PMI data suggest that the ECB has little reason to adjust interest rates at its next meeting on 11 September and that, in the absence of new shocks, it will maintain a wait-and-see approach for some time.

Important Information

The value of investments and the income derived from them can fall as well as rise, and past performance is no indicator of future performance. Investment products may be subject to investment risks involving, but not limited to, possible loss of all or part of the principal invested.

This document does not constitute and shall not be construed as a prospectus, advertisement, public offering or placement of, nor a recommendation to buy, sell, hold or solicit, any investment, security, other financial instrument or other product or service. It is not intended to be a final representation of the terms and conditions of any investment, security, other financial instrument or other product or service. This document is for general information only and is not intended as investment advice or any other specific recommendation as to any particular course of action or inaction. The information in this document does not take into account the specific investment objectives, financial situation or particular needs of the recipient. You should seek your own professional advice suitable to your particular circumstances prior to making any investment or if you are in doubt as to the information in this document.

Although information in this document has been obtained from sources believed to be reliable, no member of the EFG group represents or warrants its accuracy, and such information may be incomplete or condensed. Any opinions in this document are subject to change without notice. This document may contain personal opinions which do not necessarily reflect the position of any member of the EFG group. To the fullest extent permissible by law, no member of the EFG group shall be responsible for the consequences of any errors or omissions herein, or reliance upon any opinion or statement contained herein, and each member of the EFG group expressly disclaims any liability, including (without limitation) liability for incidental or consequential damages, arising from the same or resulting from any action or inaction on the part of the recipient in reliance on this document.
The availability of this document in any jurisdiction or country may be contrary to local law or regulation and persons who come into possession of this document should inform themselves of and observe any restrictions. This document may not be reproduced, disclosed or distributed (in whole or in part) to any other person without prior written permission from an authorised member of the EFG group.

This document has been produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.