Euro zone August business activity gets Olympic lift, PMI shows

By Jonathan Cable

LONDON (Reuters) -Euro zone business activity received a boost from France hosting the Olympic Games last month but the malaise in the bloc is likely to return once the Paralympics wraps up as demand remains weak, a survey showed.

HCOB's composite Purchasing Managers' Index for countries in the currency union, compiled by S&P Global and seen as a good gauge of overall economic health, jumped to 51.0 in August from July's 50.2.

That exceeded the 50 mark separating growth from contraction for a sixth consecutive month but was a tad below a preliminary 51.2 estimate.

"An Olympics-driven rise in the euro zone's composite PMI in August masks the underlying picture that the bloc's current growth momentum is weak," said Rory Fennessy at Oxford Economics.

"This adds further fuel to the fire for the ECB to cut rates on 12 September."

The European Central Bank will cut its deposit rate twice more this year, in September and December, according to an over-80% majority of economists polled by Reuters last month.

France's services sector experienced its most robust expansion in over two years in August but growth in Germany's slowed for a third consecutive month in a further sign that Europe's biggest economy is losing steam.

Sentiment among German exporters is growing alarmingly dark, the BGA trade lobby group said on Wednesday, while the economic institute IfW Kiel said it expected the economy to contract 0.1% this year.

In Britain, outside the European Union, services activity grew last month at the fastest pace since April and price pressures eased, with its PMI pointing to a more benign inflation outlook and a settling of the economy after July's elections.

The Bank of England will cut interest rates just once more this year, in November, a majority of economists said in a Reuters poll, as British inflation is expected to stay above target.

Overall demand in the 20-member currency union fell for a third month, suggesting weakness ahead. The composite new business index was below the 50 threshold at 49.1, albeit slightly ahead of July's 49.0.

A final PMI for the bloc's dominant services industry leapt to 52.9 from 51.9, offsetting a continued contraction in the manufacturing sector.

But optimism about the year ahead waned among services firms. The business expectations index fell to 59.1 from 60.4, its lowest reading this year.

(Reporting by Jonathan CableEditing by Christina Fincher)