S&P Global Indicator: Eurozone Services Sector Continues Growth Path in August

The picture was dampened, however, by high energy prices and marked uncertainty in the wake of a military escalation in the Gulf region. The onset of an Iran war at the end of February and the temporary closure of the Strait of Hormuz had significantly weighed on business sentiment, according to S&P Global. The business expectations indicator has barely recovered since then, it said.

Geopolitical Burden Factors

The Strait of Hormuz is considered one of the most important shipping lanes in the world. A large share of global oil and liquefied gas transport passes through this strait between Iran and Oman. A closure – or even a significant disruption – of transit can quickly push prices higher on energy markets worldwide.

Higher oil and gas prices typically feed through to consumer prices in the eurozone with a delay. S&P Global said that concerns over a revival of inflation could be one explanation for why the services sentiment indicator was not stronger. The German economy, which is particularly energy-intensive, is also feeling these effects.

A Two-Tier Economy in the Eurozone

At the national level, the data show a mixed picture according to S&P Global: while the services sector as a whole remains robust, manufacturing continues to struggle with subdued demand and a tepid order book. Economists therefore interpret the current figures as a sign of a two-tier economy in the eurozone.

The data are particularly relevant for the European Central Bank, which intends to recalibrate its monetary policy in the coming weeks. A growing services economy would argue against rapid interest-rate cuts, while weaker manufacturing could open room for easing. Both signals are now showing up simultaneously in the indicators.

Outlook for the Coming Weeks

The coming weeks will show whether the growth trend in the services sector continues or whether geopolitical risks in the Gulf once again dampen the recovery. S&P Global plans to publish its next monthly report in around four weeks.

In historical terms, the current composite PMI readings remain below the long-term average but clearly above the levels seen during the coronavirus crisis or the energy crisis of 2022 and 2023. Economist Plecko therefore spoke of a "Normalisierung auf erhöhtem Niveau".

The Austrian news agency APA, which distributed the S&P Global report on Thursday, highlighted that the data matched the expectations of many analysts. The majority of experts surveyed by Bloomberg and Reuters had expected stagnation.

Overall, the economic situation in the eurozone remains fragile but stable, according to S&P Global. Companies in the services sector proved resilient to the burdens from the Gulf region and energy price developments, it said.

For consumers in the eurozone, the development means that services – from gastronomy and tourism to IT and consulting – continue to be in demand. However, higher energy costs could feed through into prices again in the coming months and weigh on purchasing power.