Euro Zone Contraction Deeper Than Thought In December As Lockdowns Bite - PMI

LONDON: Economic activity in the euro zone contracted more sharply than previously thought at the end of 2020 and could get worse as renewed lockdown restrictions imposed to contain the coronavirus hit the bloc’s dominant service industry, a survey showed.

With infection rates soaring across Europe, countries have clamped down on public life. Germany is set to extend its strict lockdown until the end of the month and Italy decided on Tuesday to keep some nationwide restrictions in place.

IHS Markit’s final December Composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, did rise to 49.1 from November’s 45.3 but was significantly below a flash reading of 49.8. Anything below 50 indicates contraction.

“Service sector activity in particular fell more sharply than estimated by the earlier flash PMI estimate, as more countries stepped up their fights against rising virus case numbers,” said Chris Williamson, chief business economist at IHS Markit.

The services PMI registered 46.4 in December, better than the previous month’s 41.7 but far weaker than the 47.3 preliminary estimate.

With much of the service industry being forced to close demand also shrank a lot more than thought. The final services new business index was 46.6 compared to the flash estimate of 47.9, albeit better than November’s 40.6.

“Worse may be yet to come before things get better, especially as the latest survey data were collected before the news of the new – more contagious – strain of the virus,” Williamson said.

“Service sector activity in particular looks likely to remain constrained by severe social distancing in the early months of the new year.”

But with vaccines being rolled out across the continent overall optimism about the year ahead improved. The composite future output index rose to 64.5 from 60.4, its highest reading since April 2018.

The bloc’s economy is expected to gain momentum this year on vaccine hopes, a Reuters poll found last month, and will return to pre-crisis levels within two years.

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