Euro Area: Business activity growth slows in January amid the spread of Omicron variant

Euro Area PMI January 2022

Euro Area: Business activity growth slows in January amid the spread of Omicron variant

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, dropped to 52.4 in January from 53.3 in December, marking the lowest reading in 11 months. However, the index remained above the 50-threshold that distinguishes expanding from contracting activity in the private sector.

January’s deterioration was led by a marked slowdown in services sector activity, while growth in the manufacturing sector accelerated. In the services sector, activity increased at the slowest pace in nine months, while the pace of expansion in new orders eased further. On the other hand, output in the manufacturing sector was the strongest since August, amid some easing in supply constraints, and new orders in the secondary sector increased sharply. Meanwhile, the pace of job creation remained strong.

On the price front, input costs continued to soar amid stretched delivery times and marked rises in backlogs of uncompleted work. This translated into a joint-record jump in output prices. Lastly, business optimism ticked up as companies expect supply chains disruptions to ease ahead.

Assessing the Eurozone’s two largest economies, growth in business activity resumed in Germany, while it moderated in France.

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

“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. However, so far the overall impact on the wider economy appears relatively muted, and most encouraging is the further easing of manufacturing supply chain delays despite the renewed virus wave. […] However, prices for goods and services are rising at a joint-record rate as increasing wages and energy costs offset the easing in producers’ raw material prices.”

Meanwhile, Bert Colijn, senior economist at ING, stated:

“All in all, while growth is affected negatively by the new restrictions in place, there is a silver lining to this PMI release. The improvements in manufacturing should help dampen the downside from services as Omicron affects economies more, meaning that the current Covid-19 wave is likely to affect the economy less negatively than the wave from the previous winter.”

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