Despite Manufacturing Growth, Business Activity Of Euro Zone Dips Again In February

There was a slight improvement in European business activity in February even though the economy continued to contract with the Covid-19 pandemic still forcing governments to impose social restrictions, showed preliminary data that was released on Friday.

The Covid-19 pandemic is still lingering in the euro zone with movement of people still restricted in most of the European countries in order to prevent the spread of the pandemic. On the other hand, the vaccination drives in various countries are still lagging way behind the targets that European leaders would like to see it going at this time partly because of red tape and issues in production and supply.

There was however a sharp rise in IHS Markit’s flash composite PMI for the euro zone to 48.1 in February compared to 47.8 in January. The index measures activity across both manufacturing and services sectors in the euro zone. A reading below 50 represents a contraction in activity.

The business activity dropped to a three-month low in the services sector which has been hit the hardest by the lockdowns and curfews. Manufacturing on the other hand touched a  36-month high.

“Ongoing Covid-19 lockdown measures dealt a further blow to the eurozone’s service sector in February, adding to the likelihood of GDP falling again in the first quarter,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

“If you are making trains and planes at the moment you are having a rough time but on the other hand there is a lot of activity picking up around the world which is benefitting exporters,” Williamson said in a television interview.

There is expected to be a 3.9 per cent growth in euro area’s GDP in 2021, according to the forecast of the European Central Bank. But the evolution of the pandemic is the most critical factor for the realization of the forecast. Already there are concerns that the new variants of the virus could hamper economic recovery of the area even further in the eventuality of the vaccines not being as effective against the new strain of the virus.

During February, the fastest decline in three months in business activity in France was noted in the data. A complete lockdown for a third time has not been imposed by the country as the government feared that the population will not comply with the restrictions. There are however other tough measures such as curfew. France’s flash composite PMI came in at 45.2, from 47.7 in January.

“The latest PMI data suggested that the French private sector is continuing to struggle amid the ongoing Covid-19 crisis,” Eliot Kerr, economist at IHS Markit, said in a statement.

On the other hand, the flash composite PMI hit 51.3 in February for Germany which was a two month high. A wider difference between the services and the manufacturing sector of the country was noted in the latest data. While the index for services sector dropped to a nine month low, Germany’s manufacturing activity rose to a 36 month high.

The numbers “point to ongoing resilience in the German economy midway through the opening quarter, despite the country remaining under strict lockdown measures”, said Phil Smith, associate director at IHS Markit.

 “Ongoing weakness in services, where large parts of the sector remain either closed or disrupted by virus containment measures, continues to be counterbalanced by strong, export-driven growth across manufacturing,” he added.


Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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