Euro area PMI Flash January 2020: business activity declines again

LONDON – Business activity in the eurozone fell to a two-month low in January, according to preliminary data shown on Friday, on the back of tougher coronavirus-related blockades.

The region faces increasing rates of Covid-19 infection and tighter restrictions as new strains of the virus spread, causing more economic pain.

Markit’s Flash composite PMI for the euro area, which analyzes both manufacturing and services activity, fell to 47.5 in January, compared to 49.1 in December. A reading below 50 represents a contraction of activity.

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

“The stricter restrictions on COVID19 affected companies the most in January,” it said in a statement.

“Production fell at an increased pace, caused by worsening conditions in the services sector and a weakening of manufacturing growth to the minimum seen so far in the seven-month recovery in the sector.”

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

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

“In this environment, broad monetary stimulus is essential,” Lagarde said. The ECB decided on Thursday at a meeting on Thursday to keep changes in interest rates and its broader stimulus programs for now, after increasing its support in December.

The ECB expects GDP in the euro area (gross domestic product) to increase by 3.9% in 2021 and 2.1% in 2022. This is after a contraction of 7.3% in the year past. However, these forecasts depend on the evolution of the pandemic.

Previously, data on business activity in France also reached a two-month low, reflecting the imposition of stricter curfews 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 employment figures in almost a year.

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

In Germany, business activity managed to grow slightly in January, with an instant composite production index reaching 50.8. However, the reading represented a minimum of seven months for the European economic engine.

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

“However, the German economy has started slowly in the year and the extension of the current containment measures at least until mid-February means that it appears to be the picture for several more weeks,” he said.

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