Euro Area Services Sector Returns to Growth

The S&P Global Eurozone Services PMI rose to 51.6 in July 2026 from 49.4 in June, marking a five-month high and comfortably exceeding market expectations of 49.8, flash data showed. The reading signaled a return to expansion in the services sector after a three-month contraction, supported by a renewed increase in business activity. Employment also improved, with service providers driving overall job creation across the private sector. On the cost front, operating expenses continued to rise at a pace broadly unchanged from the previous month, reflecting persistent input cost pressures. However, output price inflation eased, indicating that firms were passing on costs to customers at a slower rate. Business confidence also strengthened, with sentiment regarding the year-ahead outlook improving across the services sector as companies grew more optimistic about future demand and economic conditions.

The Eurozone Services PMI Business Activity Index rose to 49.4 in June of 2026 from 47.7 in the previous month, revised higher from the preliminary estimate of 48.9 and well above the earlier market expectations of 48.5. It was the softest downturn in the bloc's services sector activity since the outbreak of war in the Middle East triggered an energy shock for European importers. New business volumes fell at a slightly faster pace than the previous month. Consequently, companies cleared backlogs of work at an accelerated take for output. Despite the pullback in demand from clients, firms recorded a fresh increase in their headcounts after the brief pullback in the second quarter. The hiring was in line with an improvement in business sentiment as energy prices fell from their peaks and reduced the surge in borrowing costs. Input inflation faced by the sector fell for the first time since October of last year.

The Eurozone Services PMI Business Activity Index improved to 48.9 in June 2026, the highest level in three months and above market expectations of 48.5, compared with 47.7 in May. The data pointed to a slower decline in services activity, with business conditions showing signs of stabilisation. New business continued to fall, but the pace of contraction eased, while input price growth weakened and output price inflation also slowed during the month. Employment trends improved, with services companies recording a renewed, although marginal, increase in staffing levels. Business confidence strengthened, suggesting improved expectations for future activity. Most responses included in the June flash PMI survey were collected before the June 17 signing of the memorandum of understanding between the US and Iran to halt hostilities, meaning the latest improvement does not fully reflect the potential impact of easing geopolitical tensions.