Euro Area Manufacturing Expands, Driven by Strong German Growth

The euro area's industrial activity continued to expand in August, driven by significant growth in Germany. According to PMI data, factory output and new orders rose at their quickest rates since early-2022, while inflation pressures eased.

The biggest positive swing comes from Germany, which recorded its best month of manufacturing sector growth in over four years. Business confidence also strengthened again in August, signaling a fourth successive monthly rise in growth expectations for the coming 12 months.

S&P Global notes that the eurozone's industrial economy has so far shaken off both the oil price shock and supply-related disruptions caused by the Middle East war. The intermediate goods sub-sector was the main contributor of manufacturing growth, including critical industries such as chemicals and metals, as well as electrical equipment and electronic components.

A further softening of producer price increases alleviates broader inflation worries, but the pace of disinflation is starting to level off, which may embolden a cautious stance by eurozone monetary policymakers.