The euro zone’s economic recovery slowed, even more, this month, according to a survey released on Monday, as fresh limitations imposed to manage the omicron coronavirus variety slowed the bloc’s main services activity and prices continued to rise.
With the outbreak sweeping Europe, governments have urged residents to stay at home and avoid mingling or gathering in groups.
The Flash Composite Purchasing Managers’ Index from IHS Markit, which is used as an indicator of overall economic health, fell to 52.4 in January from 53.3 in December, its lowest level since February and lower than the 52.6 forecasts in a Reuters poll.
The services PMI, which fell to a nine-month low of 51.2 from 53.1, had an impact on the headline statistic.
Despite being above the 50-point threshold that separates expansion from contraction, the figure was considerably below the 52.2 predicted by Reuters.
“The omicron wave has led to yet another steep drop in spending on many consumer-facing services at the start of the year, with tourism, travel, and recreation especially hard hit,” said Chris Williamson, chief business economist at IHS Markit.
With people staying at home, demand for services has almost completely dried up. The new business index fell to 50.8 from 52.5 in April, the lowest score since April of last year, shortly before sectors of the economy reopened following a tighter lockdown.
Consumers have also been affected by rising prices. The composite output prices index matched November’s survey high, and it comes after inflation reached a new high last month, putting additional pressure on the European Central Bank to tighten policy.
Factories, on the other hand, have been mainly unaffected by the limitations and have stayed open. The manufacturing PMI increased to 59.0 from 58.0, considerably above the Reuters poll expectation of 57.5.
The output index increased from 53.8 to 55.8.
The output indicator goes into the composite PMI, and its large increase demonstrates the extent to which the fall in services impacted total activity.
To keep up with rising demand, manufacturers grew their personnel at a breakneck speed. The employment index increased to 57.5 from 55.3 in July, the highest level since July.
More than two-thirds of analysts polled by Reuters last week said the omicron form would have a milder economic impact than Delta, and optimism has grown as the region’s immunization campaign continues.
The composite future output index rose to 66.8 from 66.7, reaching its highest level since the omicron wave began.
“While the omicron wave has dented prospects in the service sector, the impact so far looks less severe than prior waves. Meanwhile, perceived prospects have improved,” Williamson said.
(Adapted from CNBC.com)