While the slowdown was slightly sharper than expected, growth remained robust and firms were able to increase their prices, purchasing managers said, offering some comfort to policymakers at the European Central Bank.
The IHS Markit/CIPS Purchasing Managers' Index (PMI) increased to 54.3 in August from 53.5 in July, beating all forecasts in a Reuters poll of economists and rising further above the 50-mark that indicates growth.
But survey compiler IHS Markit cautioned the August data were based on a much smaller sample size.
The expansion, which came alongside companies raising prices at the steepest rate since mid-2011, will be welcomed by policymakers at the European Central Bank, who for years have struggled to lift growth and inflation.
Markit's flash Composite Purchasing Managers' Index, one of the first growth indicators in a month, edged down to 52.9 from April's 53.0, essentially stable but still the lowest since the start of 2015. A Reuters poll had predicted a tick up to 53.2.
Although the overall expansion was slightly better than previously thought, Markit's Purchasing Managers' Index (PMI) will make gloomy reading for the European Central Bank, coming little more than a week before its next policy setting meeting.
Emerging markets' output growth rose to a 5-month high in February, and manufacturing as well as services sector in India expanded at a faster pace than China during the month, an HSBC survey said on Friday
The tri-annual survey, published on Monday, looked at expectations for the year ahead across 6,100 manufacturing and services companies worldwide.
The HSBC Emerging Markets Index (EMI), a monthly indicator derived from Purchasing Managers' Index surveys, stood at 52.5 in September, higher from 52.4 in August. Moreover, on a quarterly basis the EMI averaged 52.2 in Q3, the best since the first quarter of 2013.
Chris Williamson, chief economist, Markit Economics explains to CNBC-TV18 that though manufacturing in the US and other economies has begun to show improvement, the positive effect is being nullified by the weakness in the eurozone and Japan.