Euro zone business activity remained strong this month, only dipping from July's two-decade high pace, as a rapid vaccination drive against the coronavirus allowed more businesses to reopen and customers to venture out, a survey showed today.

Without ongoing supply chain disruptions activity could have expanded faster but fears new coronavirus strains may lead to renewed restrictions continued to put a dent in optimism.

IHS Markit's Flash Composite Purchasing Managers' Index, seen as a good guide to economic health, fell to 59.5 in August from 60.2 last month.

It was ahead of the 50-mark separating growth from contraction but just shy of a Reuters poll estimate for 59.7.

"The euro zone's economic recovery retained impressive momentum in August, with the PMI dipping only slightly from July's recent high to put its average in the third quarter so far at the highest for 21 years," said Chris Williamson, chief business economist at IHS Markit.

"Supply chain delays continue to wreak havoc, however, leaving companies frequently unable to meet demand and pushing firms' costs higher," he added.

Firms increased headcount at a near record pace but were still unable to complete all new business coming in, building up a backlog of work at the third fastest pace in survey history. The composite employment index held at 56.1.

"Encouragement comes from a second month of job creation at the strongest for 21 years, which reflects efforts by firms to boost operating capacity and meet demand," Williamson said.

A PMI covering the bloc's dominant service industry nudged down to 59.7 from July's 15-year high of 59.8. The Reuters poll had predicted 59.8.

Demand only slowed marginally from July - suggesting the rebound will continue - but the services business expectations index, which measure optimism about the year ahead, dropped to 68.6 from 69.1.

Manufacturers had another solid month, their PMI remaining well above the breakeven mark at 61.5, albeit below July's 62.8 and the 62.0 poll estimate.

An index measuring output that feeds into to the composite PMI fell to 59.2 from 61.1.

But supply delays - the delivery times index was near a survey low - again played a key role in driving up the costs of the raw materials factories need.

The input prices index was 87.3, although down from July's record high of 89.2.