Euro zone downturn deepened in Jan as lockdowns weighed: PMI

The euro zone’s economic downturn deepened in January as renewed restrictions to quell the spread of the coronavirus hit the bloc’s dominant service industry hard, a survey showed.

Coronavirus cases have been soaring again and governments across the continent have renewed tough lockdown measures, clamping down on public life and forcing hospitality and entertainment venues to close their doors.

IHS Markit’s final January Composite Purchasing Managers’ Index (PMI), seen as a good guide to economic health, fell to 47.8 from December’s 49.1 but was a touch above a flash reading of 47.5. Anything below 50 indicates contraction.

“The euro zone economy endured a predictably tough start to 2021 as ongoing efforts to contain the spread of COVID-19 continued to hit business activity, especially in the service sector,” said Chris Williamson, chief business economist at IHS Markit.

A PMI covering the service industry fell to 45.4 from December’s 46.4 but came in higher than the 45.0 flash reading. A manufacturing PMI on Monday showed factory growth remained robust at the start of the year but the pace waned. [EUR/PMIM]

“Manufacturing growth continued to help offset some of the weakness in the service sector, though even here factories saw output growth slow amid subdued demand and supply delays, often linked to the pandemic,” Williamson said.

“A contraction of GDP therefore looks likely in the first quarter, though on current trends this should be modest in comparison to the falls seen in the first half of 2020.”

The bloc’s economy contracted 0.7% last quarter, official data showed on Tuesday, and a January Reuters poll predicted it would take up to two years for the economy to return to pre-COVID-19 levels.[ECILT/EU]

With venues closed, demand for services unsurprisingly fell. The new business index dropped to 45.4 from 46.6, albeit ahead of the 44.7 flash estimate.

But amid hopes the vaccines being rolled out would allow for some return to normality, overall optimism about the year ahead remained resilient. The composite future output index only nudged down to 64.2 from December’s 64.5, which was the highest since April 2018.