Euro Area: Business activity growth slows in December amid renewed restrictions

Euro Area PMI December 2021

Euro Area: Business activity growth slows in December amid renewed restrictions

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, dropped to 53.4 in December from 55.4 in November, marking the lowest reading in nine months. However, the index remained above the 50-threshold that distinguishes expanding from contracting activity in the private sector.

December’s deterioration was led by a marked slowdown in services sector activity, while the manufacturing sector recorded a solid rise in production, broadly in line with November’s print. In the services sector, activity increased at the slowest pace in eight months, while the pace of expansion in new orders eased further. On the other hand, output in the manufacturing sector rose solidly, despite prolonged supply constraints, and new orders in the secondary sector increased markedly. Meanwhile, the pace of job creation remained strong.

On the price front, input costs continued to surge amid ongoing supply shortages and sharp rises in backlogs of uncompleted work, although the pace of growth eased somewhat from November. This translated into a near-record jump in output prices. Lastly, business optimism remained resilient as companies expect the impact of the pandemic on supply chains to moderate over the course of 2022.

Assessing the Eurozone’s two largest economies, growth in business activity stalled in Germany, while it remained solid in France.

Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:

“Looking ahead, the Omicron variant poses further downside risks to the growth outlook as we head into 2022, and any accompanying disruption to supply chains could result in price pressures spiking higher again.”

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