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Eurozone Private Sector Logs Subdued Expansion In August

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The euro area private sector growth improved unexpectedly in August from a three month-low, but the overall pace of expansion remained subdued amid Germany facing a risk of recession, a closely watched survey showed Thursday.

The IHS Markit flash composite output index rose unexpectedly to 51.8 in August from 51.5 in July. Economists had forecast a score of 51.2. Nonetheless, the reading was one of the weakest in six years.

A reading above 50 suggest growth in the sector.

The survey revealed a wide divergence in performance between the manufacturing and service sectors. The services Purchasing Managers' Index modestly improved to 53.4 from 53.2 a month ago, while it was expected to ease to 53.0.

At the same time, the manufacturing sector remained in the negative territory in August. The indicator fell to 47.0 versus 46.5 in July. The expected level was 46.2.

"While the rate of overall expansion ticked up, we're still looking at GDP only rising by between 0.1 percent and 0.2 percent, based on the PMI data for the third quarter so far," Andrew Harker, an associate director at IHS Markit, said.

The surveys suggest that growth in the single-currency area has remained lackluster and support the case for further policy easing, Melanie Debono, an economist at Capital Economics, said.

"We still expect the ECB to cut its deposit rate by 10bps in September and to announce a fresh round of QE in October, but the chance that it will announce both measures in September has risen," Debono added.

Germany's private sector continued to underperform in August as growth in services activity was countered by a marked contraction in manufacturing.

The flash composite output index rose to 51.4 in August from 50.9 in July. The reading signaled one of the weakest performances over the past six years. Economists had forecast the index to drop to 50.6.

The services PMI fell to a seven-month low of 54.4 from 54.5 in July, but above the forecast of 54.0.

The factory PMI advanced unexpectedly to 43.6 from 43.2 in the previous month. The reading was expected to fall to 43.0.

France fared better in comparison, seeing solid expansions in both output and new orders. The composite output index rose to 52.7 from 51.9 in July.

At 52.6, the services PMI reached a 9-month high and the manufacturing sector returned to positive territory, with the index rising to 51.0 from 49.7.

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