Photo: Shoppers in Munich, Germany. Photographer: Michaela Rehle/Bloomberg Shoppers in Munich, Germany. Photographer: Michaela Rehle/Bloomberg

The contraction of private-sector activity in the Eurozone has intensified, leading investors to bet that the European Central Bank (ECB) will pause its campaign of interest-rate hikes next month.

Services in August ceased being a bright spot and followed the industrial sector into a downturn in the region’s top two economies, prompting the shift in market wagers and sending bond yields and the euro tumbling. The figures also brought warnings that output in the 20-nation bloc will shrink this quarter.

The flash Purchasing Managers’ Index (PMI) for the region fell to 47, further below the 50 threshold indicating growth. Services activity shrank for the first time since the end of 2022, while the expectation was for continued expansion in a sector that had, until recently, seen robust demand. Separate data for the UK showed private-sector firms suffered their first contraction in seven months.

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