Business activity in the eurozone slowed after restrictions to tackle surging coronavirus infections hit the services sector, while there were signs of an easing in the supply bottlenecks holding back manufacturers, according to a closely watched survey.
The IHS Markit flash eurozone composite purchasing managers’ index, a monthly poll that takes the pulse of business activity, fell slightly more in December than most economists expected to a nine-month low of 53.4, down from 55.4 the previous month.
A number of countries have announced new coronavirus containment measures recently, including Germany, Italy, Austria and the Netherlands. The restrictions are already reducing the flow of customers in the services sector, particularly at restaurants and shops.
While the PMI score for the region’s services sector remained above 50, indicating a majority of businesses still reporting higher activity levels than a month ago, the slowdown was sharper than for manufacturing.
Euro area manufacturers reported an improvement in the global supply chain problems that have caused order backlogs in factories, congestion at ports and shortages of materials, helping them to report the biggest rise in production since September.
“This chimes with our assessment that supply bottlenecks may have peaked, with the important caveat that the Omicron variant brings some downside risks in this area,” said Ricardo Amaro, senior economist at Oxford Economics.
Input costs and selling prices rose less steeply than in the previous month, but IHS Markit said they still increased at the second-fastest rates in the history of its survey. Higher shipping costs, energy prices and staff costs again added to inflationary pressures, it said.
“The eurozone economy is being dealt yet another blow from Covid-19, with rising infection levels dampening growth in the service sector in particular,” said Chris Williamson, chief business economist at IHS Markit.
But he added there was “encouragement” from the easing of supply strains in the manufacturing sector, for which the survey’s measure of output rose to a three-month high.
German businesses reported a stalling of activity and their first drop in new orders for goods and services since June 2020, as the country’s PMI score dropped to an 18-month low of 50.
The slowdown was mainly caused by the German services sector, for which the PMI score fell below 50 for the first time in eight months, indicating a fall in activity from a month ago, which outweighed a recent rebound in production at the country’s manufacturers.
Deutsche Bank economists forecast this week that Germany would enter a technical recession this winter as coronavirus restrictions, high inflation and supply bottlenecks hit Europe’s largest economy over the next two quarters.
The picture is brighter in France, where businesses reported only a slight slowdown in growth. IHS Markit said “a relatively resilient service sector helped to offset a decline in manufacturing output for the second time in the past three months”.
Most economists still expect the overall eurozone economy to continue growing in the fourth quarter, albeit at a markedly slower pace, while the rapid spread of the Omicron coronavirus variant has raised doubts about the outlook for the first quarter of next year.
“Strong recoveries are being dampened by the latest wave of the virus, but the medium-term economic outlook remains relatively benign,” said Carsten Brzeski, head of macro research at ING. He added that indications of easing price pressures were “a first cautious sign that much of the current high inflation is likely to be temporary”.
Source: Economy - ft.com
