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Eurozone business activity recovers modestly in August

Eurozone business activity accelerated in August but remains muted amid declining manufacturing and low business confidence, data from IHS Markit showed.

The flash Eurozone Composite Output purchasing managers' index, or PMI, climbed to 51.8 in August from 51.5 in July, a two-month high but still one of the weakest readings for six years. Meanwhile, manufacturing PMI rose to 47.8, from July's 46.9. The PMI reading for services was 53.4, up from 53.2 in July.

A reading above 50 signifies expansion and below 50 shows contraction. The Composite Output PMI reading exceeded the Econoday consensus expectation of 51.2.

The higher reading stemmed from expansion in the services sector partially offsetting the continued manufacturing downturn, IHS Markit reported. New orders were hampered by a fall in new export orders for the 11th consecutive month since April.

Fading business confidence, the lowest in six years, due to concerns about the global economic slowdown provoked caution and tempered job creation; employment growth was the weakest in three years. Despite this, businesses handled new orders and work backlogs with ease.

Input cost and output price inflation prices climbed in August, but manufacturers have signaled future cost and selling price reductions.

Germany recovered slightly in August after struggling over past few months with a PMI reading of 51.4, a two-month high and up from July's 50.9. However, warning signs included poor business sentiment and the lowest inflows of new orders since April 2013. Meanwhile, France performed better with a PMI reading of 52.7, up from July's 51.9, as the manufacturing sector accelerated due to a rise in output and new orders.

Andrew Harker, associate director at IHS Markit, warned of trouble regarding Germany. "The risk remains, therefore, that the euro area's largest economy will have fallen into technical recession in the third quarter."