Virus drags down eurozone business activity to two-month low

Business | 22 Jan 2021 8:49 pm

Business activity in the euro zone fell to a two-month low in January, preliminary data showed on Friday, on the back of stricter coronavirus-related lockdowns, CNBC reports.

The region is grappling with growing coronavirus infection rates and tighter restrictions as new strains of the virus spread, causing further economic pain.

Markit’s flash composite PMI for the euro zone, which looks at activity across both manufacturing and services, dropped to 47.5 January, versus 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 euro zone was looking “increasingly inevitable.”

“Tighter coronavirus restrictions took a further toll on businesses in January,” he said in a statement.

“Output fell at an increased rate, led by worsening conditions in the service sector and a weakening of manufacturing growth to the lowest seen so far in the sector’s seven-month recovery.”

European Central Bank President Christine Lagarde acknowledged on Thursday that the pandemic still posed “serious risks” to the euro zone economy.

In addition to the new variants, there are also concerns over a slow vaccination roll-out across the European Union.

“In this environment ample monetary stimulus remains essential,” Lagarde said. The ECB decided at a meeting on Thursday to keep interest rates and its wider stimulus programs unchanged for now, having boosted its support in December.

The ECB expects the euro zone’s GDP (gross domestic product) to expand by 3.9% in 2021, and 2.1% in 2022. This is after a contraction of 7.3 percent last year. However, these forecasts are dependent on the evolution of the pandemic.

 



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