Euro flash PMIs in January 2020: Business activity shrinks again

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

The region is struggling with growing Covid-19 infection rates and stricter restrictions as new virus strains spread, causing further economic pain.

Markit’s composite PMI for the eurozone, which looks at activities in both manufacturing and services, fell to 47.5 January from 49.1 in December. A reading below 50 suggests a contraction in activity.

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

“Stricter Covid-19 restrictions took a further toll on businesses in January,” he said in a statement.

“Production fell at a higher rate, led by deteriorating conditions in the service sector and a weakening in manufacturing growth to the lowest seen so far in the seven months recovery of the sector.”

Christine Lagarde, president of the European Central Bank, acknowledged on Thursday that the pandemic still poses ‘serious’ risks to the eurozone economy.

In addition to the new Covid variants, there is also concern about a slow vaccination throughout the European Union.

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

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

Earlier, France’s business activity data also reached a two-month low, reflecting the imposition of tougher spending across the country. The country’s composite PMI for January was 47, which made a contraction.

However, French companies hired more employees in January – the first increase in figures 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,” IHS Markit economist Eliot Kerr said in a statement.

In Germany, business activity grew slightly in January, with the flash composite manufacturing index at 50.8. However, the reading was a seven-month low for the European economic engine.

Phil Smith, co-director at IHS Markit, highlighted a slower momentum in manufacturing activity in the country and a continued hit for the services sector during January.

“All in all, the German economy has started the year slowly, and extending the current austerity measures to at least mid-February means it looks like it will be the picture for a few more weeks,” he said.

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