Source: Markit Economics

• Flash Eurozone Composite Output PMI(¹) at 48.0 (47.8 in July); third sub-50 reading.

• Flash Eurozone Services Activity Index(²) at 48.2 (48.3 in July); lowest since June 2003.

• Flash Eurozone Manufacturing PMI(³) at 47.5 (47.4 in July); third sub-50 reading.

• Flash Eurozone Manufacturing Output Index(⁴) at 47.6 (46.7 in July); third sub-50 reading.

The RBS/Markit Flash Eurozone Composite Output Index, based on around 85% of normal monthly survey replies, registered a contraction of private sector output for the third month running in August. The seasonally adjusted index rose from 47.8 to 48.0, indicating that the rate of decline eased only marginally from July, which had seen the steepest contraction since November 2001.

Output fell in both manufacturing and service sectors, with manufacturers again reporting the steeper rate of contraction despite seeing a slight easing in the rate of decline. The rate of contraction of output in the service sector, as measured by business activity, accelerated marginally to the fastest since June 2003.

Expectations of business activity in the service sector in 12 months' time recovered slightly, having plunged to a record low in July, but remained very subdued by historical standards of the survey.

New orders fell at rate only fractionally less than the five-year record decline seen in July, dropping for the fourth successive month. New orders were led down by the manufacturing sector, which saw new business fall for the fifth month running. The rate of decline moderated very slightly during the month, but remained at a pace not seen since late-2001. August saw a reduction in the number of new export orders lost compared to July, aided by the depreciation of the euro, but new export orders still fell for the fifth month in a row. The rate of loss of incoming new business in the service sector meanwhile remained unchanged on July's five-year high, with sales down for the third straight month.

Having hit a near-eight-year high in July, input price inflation fell back markedly in August. Raw material price inflation in manufacturing moderated from July's near four-year peak, attributed to lower fuel prices and some easing in other commodity prices. Input cost pressures also eased in the service sector, with the rate of increase slowing for the second consecutive month to the weakest since February, linked to lower energy and fuel costs.

Output price inflation fell from July's record peak, dropping to the lowest since February, attributable to slower growth of input costs and the need to compete on price to win sales. The rate of inflation of selling prices slowed in both manufacturing and services, with the latter seeing a particularly subdued increase as the rate eased further from June's two-year high. In manufacturing, the rate of inflation fell back to a level close to that seen in June, having hit an 18-month peak in July.

Employment fell for the second month in a row in August, with the rate of job losses picking up to the highest since March 2004. Employment fell for the third successive month in manufacturing and for the second month running in services.

Backlogs of work fell for the fifth consecutive month. The decline was less steep than July but was nonetheless the second-largest seen in the past five years. Service sector backlogs showed the smallest decline for four months but the rate of decline in manufacturing hit a new survey record.

Commenting on the flash PMI data, RBS Head of Euro Area Economics, Jacques Cailloux said: “The August flash PMI suggests that GDP probably stagnated in Q3, raising hopes that the region has not yet entered a technical recession of two consecutive quarterly declines. However, with forward-looking indicators such as new business and expectations in the service sector remaining close to survey record lows, there appears to be little prospect of the economic picture improving in coming months.”

The Eurozone PMI (Purchasing Managers' Index) is produced for RBS Global Banking & Markets by Markit Economics and is based on original survey data collected from a representative panel of 5000 companies based in the euro area manufacturing and service sectors.

The flash estimate is typically based on approximately 85-90% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

1. The Composite Output PMI is a weighted average of the Manufacturing Output Index and the Services Business Activity Index.

2. The Services Business Activity Index is the direct equivalent of the Manufacturing Output Index, based on the survey question “Is the level of business activity at your company higher, the same or lower than one month ago?”

3. The Manufacturing PMI is a composite index based on a weighted combination of the following five survey variables (weights shown in brackets): new orders (0.3); output (0.25); employment (0.2); suppliers' delivery times (0.15); stocks of materials purchased (0.1). The delivery times index is inverted.

4. The Manufacturing Output Index is based on the survey question “Is the level of production/output at your company higher, the same or lower than one month ago?”