22 Jan 2021
Eurozone economic activity nosedived in January as the service industry was impacted by the strict measures to contain the spread of coronavirus.
IHS Markit’s flash composite purchasing managers’ index (PMI) for the euro zone dropped to 47.5 this month, under the 50-mark separating growth from contraction, from December’s reading of 49.1.
A Reuters poll had predicted a decline to 47.6.
Tomas Dvorak at Oxford Economics said of the figures: “High infection rates are again forcing governments to extend and tighten containment measures.
“The flash PMIs point to a looming contraction in euro zone GDP in Q1. We don’t expect any meaningful economic recovery before the pandemic is brought under control.”
German services sector activity dropped for the fourth consecutive month under a strict lockdown.
Elsewhere, in France the service sector was impacted particularly hard from the nationwide lockdown measures, with overall activity contracting more than predicted.
Outside the EU, in Britain a third lockdown led to the steepest drop in business activity since May.
Moreover, a PMI taking into account the euro zone’s dominant service industry fell to 45.0 from 46.4, surpassing expectations in a Reuters poll that predicted a fall to 44.5.
With activity still falling, services companies were forced to cut their charges, with the output price index dropping to its lowest mark since June.
Although factory activity was robust and the manufacturing PMI remained over the breakeven point, factories again slashed headcount.
In addition, as vaccine rollouts are accelerating after a slow start in Europe, respondents to the survey are optimistic about 2021.
According to Jessica Hinds at Capital Economics: “The outlook hinges on the pace of the so-far slow vaccine rollout; more delays will only postpone the recovery.”