Euro-area economic activity strengthened in August, with the flash composite Purchasing Managers' Index rising to 52.1 from 52 in July, according to S&P Global data. The manufacturing output index climbed to 52.8, while the services PMI held steady at 51.7, all exceeding Barclays' forecasts.
The uptick was broad-based across the bloc, though regional disparities remained. France's composite PMI fell 0.6 point to 48.8, signaling contraction, while Germany's eased 0.3 point to 51.0. Peripheral economies accelerated 1.4 points to 55.8, the highest reading since early 2023.
Inflation pressures showed little sign of abating. Final July headline inflation was confirmed at 2.9% year-on-year, up from 2.8% in June, with month-on-month inflation at 0.21%. Energy inflation surged 1.8 percentage points to 10.3% year-on-year, driven by higher fuel, gas, and electricity prices. Barclays now expects August headline inflation to rise to 3.4% year-on-year, with a peak of 3.6% projected in Q4 2026 before easing toward the ECB's 2% target in 2027.
Core inflation remained unchanged at 2.5% year-on-year, though Barclays noted a slight month-on-month decline of 0.03%. Negotiated wage growth slowed to 2.4% year-on-year in Q2, down from 2.6% in Q1, reflecting moderating labor cost pressures.
Business sentiment showed mixed signals. France's INSEE business climate indicator rose for a third consecutive month to 98.1 in August, while euro-area consumer confidence improved marginally to -15.5. Barclays maintained its call for a 25-basis-point ECB rate hike in September, citing resilient activity, accelerating inflation, and persistent energy market risks. The bank expects the ECB to pause thereafter.
