Flash PMI for the euro zone January 2020: commercial activity declines again

LONDON – Trade activity in the euro area fell to its lowest level for two months in January, according to preliminary data on Friday, amid tighter lockdowns linked to coronaviruses.

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

Markit’s flash composite euro area PMI, which examines activity in both manufacturing and services, fell to 47.5 in January, from 49.1 in December. A reading below 50 represents a contraction in activity.

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

“The tightening of COVID19 restrictions took a further toll on businesses in January,” he said in a statement.

“Production fell at an accelerating pace, driven by deteriorating conditions in the service sector and weakening manufacturing growth to the lowest ever seen in the sector’s seven-month recovery.”

The President of the European Central Bank, Christine Lagarde, acknowledged Thursday that the pandemic still posed “serious risks” to the economy of the euro area.

In addition to the new variants of Covid, the slow roll-out of vaccination in the European Union is also of concern.

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

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

Previously, France’s trade activity data was also at a two-month low, reflecting the imposition of stricter curfews across the country. The country’s composite PMI for January was 47, which caused a contraction.

However, French companies hired more workers in January – the first increase in the number of jobs in almost a year.

“The return of companies to recruiting activity indicates some confidence in an economic recovery in the second half of this year,” Eliot Kerr, economist at IHS Markit, said in a statement.

In Germany, business activity managed to grow slightly in January, with the composite flash production index standing at 50.8. However, the reading represented a seven-month low for the European economic engine.

Phil Smith, associate director at IHS Markit, pointed to a slowdown in the dynamics of manufacturing activity in the country and a continued impact on the service sector in January.

“Overall, the German economy has started the year slowly, and the extension of current containment measures until at least mid-February means that appears to be the case for several weeks to come,” said he declared.

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