Euro Area: Business activity falls for fourth consecutive month in February
The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, inched up to 48.1 in February from 47.8 in January, logging the fourth consecutive monthly decline in business activity amid extended Covid-19 restrictions. The print was largely in line with market expectations and the index remained entrenched below the 50-threshold that distinguishes contracting from expanding activity in the private sector.
While the manufacturing sector moved further into expansionary territory, the services sector fell deeper into contractionary terrain. Similarly, production and new orders in the manufacturing sector expanded for the eighth consecutive month, and at a steep pace, while they contracted more sharply in the services sector sharpened.
Meanwhile, firms cut jobs for the 12th consecutive month, albeit only marginally. On the price front, input cost inflation intensified further, especially in the manufacturing sector, where input prices jumped at the fastest pace in almost a decade amid widespread shortages for many key raw materials and strong demand. In turn, output prices were unchanged, although this was due to declining services prices offsetting the strongest increase in manufacturing prices in close to three years. Lastly, business expectations rose to the highest since March 2018 on the back of hopes of successful vaccine roll-outs.
Assessing the Eurozone’s two largest economies, Germany continued to expand in February, and at a somewhat stronger pace, while the pace of contraction in business activity in France intensified.
Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:
“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. […] Vaccine developments have meanwhile helped business confidence to revive. […] Assuming vaccine roll-outs can boost service sector growth alongside a sustained strong manufacturing sector, the second half of the year should see a robust recovery take hold.”
Meanwhile, Bert Colijn, Eurozone senior economist at ING, stated:
“For the months ahead, a sharper increase in goods prices seems to be in the making. With other temporary pressures already setting inflation higher, we expect this to add to a markedly higher inflation reading over the coming months. While we expect economic growth to start a sharp recovery this year, it will clearly lag inflation as lockdowns are still set to continue for the short-term.”