Eurozone Private Sector Expands On German Growth; France Weakens

(RTTNews) - Eurozone private sector growth improved in August underpinned by German activity, while the expansion in France eased to a four-month low, signaling the widening divergence between two largest euro area economies.

At 54.1, the flash Purchasing Managers' Index ticked higher from July's final reading of 53.9 and remained at an expansionary level for the twenty-sixth successive month, preliminary data from Markit Economics showed Friday.

The pace of increase was one of the fastest seen over the past four years and stayed above the expected level of 53.7.

Positive contributions to growth were provided by both the manufacturing and service sectors, with rates of expansion accelerating in both cases.

Companies in both sectors said output increased in response to higher levels of incoming new work. Increased orders and production encouraged further job creation in the bloc, with employment rising for the tenth successive month.

The outlook for the Eurozone economy also remained on the upside during August. At the same time, business optimism at service providers remained moderately positive despite slipping to an eight-month low.

On the cost front, average input prices rose for the seventh successive month in August. Meanwhile, average output charges decreased again in August, although the pace of decline remained only marginal.

The Eurozone services PMI rose to 54.3 in August from 54 in July. It was expected to remain at 54. Meanwhile, the manufacturing PMI remained unchanged at 52.4. Economists had forecast a score of 52.2 for August.

Rob Dobson, a senior economist at Markit said, GDP growth is tracking close to 0.4 percent so far in the third quarter, highlighting the resilience of the economy through last month's roller coaster events of the Greek debt crisis and the ongoing negotiations to tie up the full details surrounding the third bailout.

Although there are some positive signs in the survey, it still points to weak growth that will do little to erode the spare capacity in the region or to push inflation back towards the European Central Bank's target of close to 2 percent, Jennifer McKeown, an economist at Capital Economics, said.

The survey underlined sharp divergence between Germany and France. Stronger growth in Germany and outside of the 'big-two' nations were the main growth spurs in August.

Germany's private sector grew at the fastest pace in four months in August. The flash composite output index rose to 54 in August from 53.7 in July.

Manufacturers reported the sharpest rise in output for five months, while activity growth at service providers was little-changed from July.

The services PMI fell to 53.6 in August from 53.8 in July, while it was forecast to rise marginally to 53.7. Meanwhile, the manufacturing PMI rose to a 16-month high of 53.2 from 51.8 a month ago. The expected score was 51.6.

The largest euro area economy expanded 0.4 percent in the second quarter as a weaker euro underpinned exports. Oliver Kolodseike, an economist at Markit, expects third quarter German GDP to increase at a similar rate.

Meanwhile, the French private sector growth slowed to a 4-month low in August. The composite output index fell to 51.3 in August from 51.5 in July.

Expansion remained centered on the service sector, where activity increased for a seventh consecutive month in August. The services PMI dropped to 51.8 from 52 in July, while it was forecast to remain unchanged at 52.

On the other hand, French manufacturers reported a drop in output for the second month running, with the rate of contraction remaining marginal overall. The PMI for manufacturing dipped unexpectedly to 48.6 from 49.6. Economists had expected the index to rise marginally to 49.7.