Eurozone flash PMIs January 2020: Business is shrinking again

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A man over 75 is given a vaccine against the coronavirus (Covid-19) that was given in Strasbourg, France.

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LONDON – Eurozone business fell to two-month lows in January, preliminary data showed on Friday amid tighter coronavirus-related easing.

The region is grappling with rising Covid-19 infection rates and tighter restrictions as new strains of the virus spread and create further economic problems.

Markit’s flash composite PMI for the euro area, which studies both manufacturing and services activity, fell to January 47.5 from January 49.1. A value below 50 means a contraction in activity.

Chris Williamson, chief economist at IHS Markit, said a double-dip recession for the euro zone was “increasingly inevitable”.

“Tighter Covid-19 restrictions continued to weigh on companies in January,” he said in a statement.

“Production declined faster due to worsening conditions in the service sector and slowdown in output growth to its lowest level in seven months.”

European Central Bank President Christine Lagarde admitted 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 a slow introduction of vaccinations across the European Union.

“In this environment, sufficient monetary stimulus remains essential,” said Lagarde. The ECB decided at a meeting on Thursday to leave interest rates and its broader stimulus packages unchanged for the time being after stepping up its support in December.

The ECB assumes that the GDP (gross domestic product) of the euro area will increase by 3.9% in 2021 and by 2.1% in 2022. This corresponds to a decrease of 7.3% in the past year. However, these projections depend on how the pandemic develops.

France is hiring more

Before that, France’s business activity data was also at a two-month low, due to the introduction of stricter curfews across the country. The country’s composite PMI for January was 47, which resulted in a decline.

However, French companies hired more people in January – the first increase in employment in almost a year.

“The fact that the companies have been reinstated suggests 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 grew slightly in January, with the Flash Composite Output Index standing at 50.8. However, the value was a seven-month low for Europe’s economic engine.

Phil Smith, associate director at IHS Markit, highlighted slower manufacturing momentum in the country and a sustained blow to the services sector in January.

“All in all, the German economy has got off to a sluggish start to the year, and extending the current containment measures until at least mid-February means that will be the picture for a few more weeks,” he said.

The federal government decided a few days ago to extend the national lockdown until February 14th.