Eurozone businesses reported a weaker than expected start to the year with activity growing at its slowest rate for 11 months despite an easing of 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, slowed slightly more than most economists expected to 52.4, down from 53.3 in the previous month.
A PMI score above 50 indicates that a majority of businesses are reporting higher activity levels than a month ago. But the survey results suggest the eurozone could emerge in worse shape than expected from the latest surge in infections with the Omicron coronavirus variant.
“While the Omicron wave has dented prospects in the service sector, the impact so far looks less severe than prior waves,” said Chris Williamson, chief business economist at IHS Markit. “Meanwhile, perceived prospects have improved among manufacturers, linked to fewer supply shortages, adding to the brightening outlook.”
Businesses also reported that average prices charged for goods and services had risen at the fastest rate since the survey started in 2002, indicating that inflation was likely to remain high at the start of this year after hitting a eurozone record of 5 per cent in December.
While infection rates across the 19 countries that share the euro have risen to their highest levels since the pandemic began, cinema ticket sales, hotel bookings, job postings and mobility data have fallen far less than in previous surges caused by the coronavirus.
Yet services businesses in the bloc said tightened coronavirus restrictions had weighed on demand — particularly in consumer-facing and hospitality sectors — while staff absences due to Covid-19 also inhibited activity. The services PMI reading fell to a nine-month low of 51.2.
Euro area manufacturers reported an easing of the supply chain problems that have caused record order backlogs in factories, congestion at ports and shortages of materials, helping to lift the sector’s PMI score to 59, a five-month high.
“Average supplier delivery delays lengthened to the least extent since January of last year, with fewer items reported in short supply and shipping delays showing signs of easing,” IHS Markit said.
German businesses — particularly in its sprawling manufacturing sector — reported a “surprisingly resilient performance” with the country’s PMI reading rising to 54.3, its highest level since September.
The survey cast doubt over predictions Germany could slide into a recession — defined as two consecutive quarters of negative growth — this winter. But Michael Holstein, chief economist at Germany’s DZ Bank, said: “We continue to assume that the first quarter will be difficult for the German economy and we do not anticipate a thorough revival until spring.”
In France, where the government plans to loosen coronavirus restrictions that were tightened last month, business activity slowed to its lowest growth rate for nine months. The country’s PMI score fell to a nine-month low of 52.7, hit by weaker growth in both services and manufacturing.
“With the number of new Covid-19 cases having peaked in some countries and some governments having already outlined plans to ease restrictions, eurozone economic activity should pick up a bit in February and March,” said Andrew Kenningham, chief Europe economist at Capital Economics.
He said eurozone growth “probably came close to a standstill” in the fourth quarter and forecast it would rebound with growth of 0.5 per cent in the first three months of 2022.
Source: Economy - ft.com
