• July flash services PMI 51.6 vs 49.8 expected
• Prior 49.4
• July flash manufacturing PMI 52.0 vs 51.5 expected
• Prior 51.4
• July flash composite PMI 51.9 vs 50.3 expected
• Prior 50.3

It’s all good news for the euro area economy to start Q3, with better readings across both the services and manufacturing sectors. Overall business activity expanded further with the services print being a 5-month high and manufacturing print a 3-month high. On the latter, the manufacturing output index even shot up to a 52-month high and underscores the recovery especially in the German scene.

The rise in output in July was in line with a renewed increase in new orders, the first in five months. Although modest, the rate of growth was the fastest since April 2023.

Adding to the more positive picture is a first increase in employment in 2026 so far, although the rate of job creation was only marginal at best. And on the price front, the rate of input cost inflation slowed in July and was the lowest since February. That being said, input prices continued to rise sharply during the month. So, it’s not quite a signal that price pressures are changing course just yet. And even more so now since the Middle East conflict is starting back up again.

S&P Global notes 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.

“After a largely stagnant second quarter, there has been something of a bounce in demand during July which takes the PMI up to a level indicative of GDP growing at a reasonably solid 0.3% quarterly pace. This represents the best performance since the outbreak of the war in the Middle East with manufacturing enjoying its strongest growth spurt since early-2022 and services buoyed by a solid rebound in activity after three months of decline. 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.

“The improving picture also spreads to the labour market, where companies reported the first rise in payroll numbers so far this year as business growth expectations revived to the highest since February.

“Cost pressures have meanwhile cooled sharply and are now down to their lowest since the outbreak of the war in February, helping moderate the rate of inflation for selling prices across goods and services. This will take pressure off the ECB in terms of any imminent need for further rate hikes.

“However, whether all this good news can be sustained in the coming months largely depends on the situation in the Middle East. With oil prices on the rise again in recent days and shipping worries escalating, there’s a danger that the economy could relapse if inflationary pressures intensify again and supply disruptions, notably for energy, derail this nascent upturn.”

This article was written by Justin Low at investinglive.com.