A slowdown in eurozone business activity accelerated in January, making a new recession almost certain as the COVID-19 pandemic continues to batter the economy, a key survey showed on Friday.
The closely watched PMI index, compiled by IHS Markit, is considered the earliest indicator of the state of the economy and the latest reading confirmed fears that the year-old virus crisis is still going strong.
“A double-dip recession for the eurozone economy is looking increasingly inevitable as tighter COVID-19 restrictions took a further toll on businesses in January,” Chris Williamson, chief business economist at IHS Markit, said.
This meant that the economies of the 19 countries that use the single currency, dominated by Germany and France, would sink back into recession after only a very short recovery over the European summer.
The firm’s closely watched PMI index fell from 49.1 points in December to 47.5 points this month, further away from the 50-point level which indicates growth.
Williamson noted however that the bad start to 2021 would be less damaging than the economic collapse seen in the first wave of the pandemic last year.
The bad start to 2021 would be less damaging than the economic collapse seen in the first wave of the pandemic last year- Chris Williamson, IHS Markit chief business economist
This was due to the “ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year,” he said.
The difference between France and Germany was notable.
German exports managed to keep the country narrowly on a growth trajectory, while French business activity sank.
The situation for the rest of the eurozone, accounting for a little more than half of the bloc’s economy, was even worse.
Worryingly, employment across the eurozone fell for an 11th consecutive month, albeit with modest increases in France and Germany, IHS Markit said.
The bleak picture confirmed a warning by European Central Bank chief Christine Lagarde who saw “serious risks” still looming over the eurozone economy.
Much hope has been put in the distribution of vaccinations to reopen the economy but the campaign in the EU is going at a slower pace than hoped.
The rollout of vaccines had instilled “a strong degree of confidence” but “the recent rise in virus case numbers has caused some pull-back in optimism,” Williamson said.
IHS Markit on Friday also posted an alarming survey result for Britain, where activity collapsed from a modest expansion in December to a low 40.6 points in January.
The country, which left the EU’s single market on January 1, has seen a series of damaging lockdowns due to the spread of a more contagious strain of the virus.