Eurozone Flash PMIs January 2020: business activity decreases again

LONDON – Eurozone business activity fell to a two-month low in January, preliminary data showed on Friday, due to stricter coronavirus-related restrictions.

The region is battling rising rates of Covid-19 infection and stricter restrictions as new strains of the virus spread, causing further economic problems.

Markit’s flash composite PMI for the euro zone, which looks at manufacturing and service activity, dropped to 47.5 in January, from 49.1 in December. A reading below 50 represents a contraction in activity.

Chris Williamson, chief business economist at IHS Markit, said a double-dip recession for the eurozone seemed “increasingly inevitable”.

“Tighter restrictions on COVID19 further affected companies in January,” he said in a statement.

“Production fell at a high rate, led by worsening conditions in the service sector and a weakening of manufacturing growth to the lowest level seen so far in the sector’s seven-month recovery.”

European Central Bank President Christine Lagarde acknowledged on Thursday that the pandemic still poses “serious risks” to the eurozone economy.

In addition to the new Covid variants, there are also concerns about the slow implementation of vaccination across the European Union.

“In this environment, a broad monetary stimulus remains essential,” said Lagarde. The ECB decided at a meeting on Thursday to keep interest rates and its broader stimulus programs unchanged for the time being, increasing its support in December.

The ECB expects eurozone GDP (gross domestic product) to grow 3.9% in 2021 and 2.1% in 2022. This is after a 7.3% contraction last year. However, these predictions depend on the evolution of the pandemic.

Previously, France’s business activity data also recorded a two-month low, reflecting the imposition of tougher curfews across the country. The country’s composite PMI for January was 47, making a contraction.

However, French companies hired more employees in January – the first increase in the number of jobs in almost a year.

“The fact that companies have returned to recruiting activity indicates some confidence in an economic recovery in the second half of this year,” said Eliot Kerr, an economist at IHS Markit, in a statement.

In Germany, business activity managed to grow slightly in January, with the composite flash production index reaching 50.8. However, the reading represented a seven-month low for Europe’s economic engine.

Phil Smith, associate director of IHS Markit, highlighted a slower momentum in manufacturing activity in the country and continued success in the service sector in January.

“Overall, the German economy had a slow start to the year, and the extension of current containment measures until at least mid-February means that this appears to be the scenario for a few more weeks,” he said.

The German government decided a few days ago to extend the national blockade until February 14.