Euro zone factory growth at more than four-year high in August, PMI shows

LONDON, Sept 1 (Reuters) - Growth in the euro zone's manufacturing sector hit its fastest pace in more than four years in August, driven by the strongest rise in new orders since early 2022 and output expanding at a robust rate, a survey showed.

S&P Global's Eurozone Manufacturing Purchasing Managers' Index (PMI) rose to 52.7 in August from 51.9 in July, its highest reading since May 2022 but just shy of a preliminary estimate of 52.8.

PMI readings above 50.0 indicate growth in activity.

"The August PMI report provided the clearest signs yet that the euro zone's industrial economy has so far shaken off both the oil price shock and supply-related disruptions caused by the Middle East war. Stronger order book growth, in part owing to a recovery in export demand, should give this expansion legs," said Joe Hayes, senior principal economist at S&P Global Market Intelligence.

New orders grew at their sharpest pace since early 2022, with export orders rising for only the second time in 4-1/2 years, providing notable support. Overseas sales were particularly strong in Austria, Germany and the Netherlands.

Factory output growth accelerated, with the sub-index climbing to 53.3 in August from 52.9, a 54-month high. Intermediate goods such as chemicals, metals and electronic components were the biggest driver of production gains.

Germany posted its strongest factory growth in over four years while France also contributed to the overall expansion. However, Italy saw its first contraction since January and Spain was also in negative territory.

Employment was broadly unchanged, ending more than three years of consecutive monthly declines in a modest but notable shift.

On prices, input cost inflation eased to a six-month low, though it remained well above levels seen before the Middle East conflict began. Output price inflation followed a similar pattern.

"A further softening of producer price increases, even in the midst of sustained oil market volatility, helps to alleviate broader inflation worries. That said, the pace of disinflation is starting to level off and the PMI's price metrics remain well above their pre-war levels, which may just embolden a cautious stance by euro zone monetary policymakers," Hayes added.

Still, official data out on Tuesday is expected to show that inflation rose to 3.3% in August from 2.9%.

The European Central Bank is expected to raise interest rates again this month as high energy prices push inflation further from the bank's 2% target, and then keep policy unchanged through at least the middle of 2027, an August Reuters poll found. 

Manufacturers' business confidence rose for a fourth consecutive month, with optimism about the 12-month outlook climbing above its long-term average.

(Reporting by Jonathan Cable; Editing by Hugh Lawson)