Euro zone factory activity rises in August on strong demand-PMI

By Rahul Karunakar

REUTERS - Euro zone manufacturing activity accelerated in August, clocking the fastest rise in export orders since February 2011 despite a strengthening currency, a business survey showed.

Along with evidence of slowly-rising pricing power for businesses, the data may bolster confidence in the European Central Bank to make - and go ahead with - plans to reel back its massive asset purchases programme later this year.

IHS Markit's Manufacturing Purchasing Managers' Index for the euro zone rose to 57.4 in August, in line with the preliminary reading and up from 56.6 in July.

The latest factory PMI matched where it was in June, which was the highest since April 2011 and well above the 50 level that separates growth from contraction.

Strong manufacturing growth was recorded broadly across all major euro zone economies, with German factory activity also rising to the best since early 2011.

"The euro zone's impressive manufacturing upturn regained momentum in August, with a summer surge in factory activity suggesting rising goods production will support another strong GDP reading in the third quarter," said Chris Williamson, chief business economist at IHS Markit, in a release.

"Producers across the region are benefiting from rising domestic demand as economic recoveries gain momentum, as well as surging export sales."

An index measuring output, which feeds into a composite PMI due on Tuesday, jumped to 58.3 from 56.5 in July, and slightly higher than the flash estimate of 58.1. The backlogs of work index rose to an 11-year high, a good sign for future output.

Solid euro zone growth this year has led to expectations for the ECB to move away from its ultra-easy policy and has pushed the euro over 12 percent higher against the dollar in 2017.

Still, the export orders sub-index, which also includes trade within the euro area, rose to the highest in 6-1/2 years to 58.5 in August, in line with the flash estimate and up

sharply from 56.8 in July.

That improvement in demand was for products from across the nations in the euro zone broadly, with German export orders rising at the fastest pace since May 2010.

The survey also showed price pressures strengthened a bit in August with input costs rising the fastest since May and output prices increasing at a faster rate than in the previous month.

Euro zone inflation rose more than expected to 1.5 percent in August, according to official data published on Thursday.

But inflation in the 19-country currency bloc is well below the central bank's target of just below 2 percent and wage pressures have remained largely absent.

(Editing by Toby Chopra)