Eurozone services hit in February but factories are racing: PMIs

LONDON (Reuters) – Trade activity in the euro zone contracted again in February as lockdown measures to contain the coronavirus hammered the bloc’s dominant service sector, an investigation has shown, even as factories had their busiest month in three years.

With infections reported daily, governments have always encouraged citizens to stay at home and shut down much of the continent’s hospitality industry while factories have remained wide open.

IHS Markit’s Flash Composite PMI, seen as a good indicator of economic health, has moved closer to the 50 mark between growth and contraction, posting 48.1 in February from 47.8 in January. A Reuters poll had predicted 48.0.

However, part of this activity came from fulfilling old orders. The backlog index fell to 47.9 from 49.0.

“The ongoing COVID-19 lockdown measures dealt a further blow to the euro area services sector in February, adding to the likelihood of a further decline in GDP in the first quarter,” said Chris Williamson, economist in chef at IHS Markit.

The eurozone economy is in a double-dip recession, according to last week’s Reuters poll of economists, which said risks to their already weak outlook were more on the downside. [ECILT/EU]

A PMI covering the services sector fell to 44.7 from 45.4 in January, well below the median expectation of a Reuters poll of 45.9.

But with the acceleration of vaccination programs, raising hopes of a return to some form of normalcy, optimism for the coming year has improved markedly. The Service Business Expectations Index reached its highest level since April 2018.

“Assuming that vaccine deployments can spur service sector growth alongside a strong and sustained manufacturing sector, the second half of the year should see a robust recovery take hold,” said Williamson.

Strong demand for manufactures helped the plant’s PMI soar to 57.7 from 54.8, the highest since February 2018 and well above all forecasts of a Reuters poll that predicted 54.3 . An index measurement output, which feeds the composite PMI, increased from 54.6 to 57.5.

The new orders index also exploded, and factories hired additional staff for the first time in nearly two years. The employment index fell from 49.4 to 50.9.