Euro zone economic recovery faltered in Dec as Omicron spread -PMI

People queue for COVID-19 tests in front of a laboratory in Paris amid the spread of the coronavirus disease (COVID-19) pandemic in France, January 4, 2022. REUTERS/Sarah Meyssonnier

LONDON, Jan 5 (Reuters) – The euro zone’s economic recovery faltered in December as a resurgence in COVID-19 infections curtailed growth in the bloc’s dominant service industry, a survey showed, and could weaken further if tighter restrictions are imposed.

As the Omicron coronavirus variant spread rapidly at the end of last year governments reimposed measures to contain infection rates, particularly in Germany – Europe’s largest economy.

That meant IHS Markit’s Composite Purchasing Managers’ Index (PMI), a good gauge of overall economic health, sank to 53.3 in December from 55.4 in November, its lowest since March.

While the final reading was below an earlier 53.4 “flash” estimate it did hold above the 50 mark separating growth from contraction.

“The accelerated expansion in output we saw in November unfortunately turned out to be brief. The spread of the Omicron variant had a particularly profound impact on the services sector, reflecting renewed hesitancy among customers,” said Joe Hayes, senior economist at IHS Markit.

“As euro area nations deal with the latest developments in the pandemic, it’s clear that risks to the economy are now greater as tighter restrictions to curb the spread of COVID-19 are more likely than they have been recently.”

A PMI covering the services industry dropped to an eight-month low of 53.1 from November’s 55.9, under the 53.3 preliminary reading.

Weaker demand and the threat of further restrictions on the horizon meant services firms increased headcount at the slowest pace since May. The employment index fell to 53.6 from 55.4.

A factory PMI released on Monday, which showed manufacturing activity remained resilient in December, suggested an easing of supply chain bottlenecks had alleviated some price pressures.

But the composite input prices index stayed high at 74.1, albeit below November’s 76.0. The output prices index fell but remained elevated.

“There was also little to cheer with regards to inflation. Although there was a marginal easing of price pressures, we’re still in excessively hot territory – increases in both input and output costs were the second-quickest on record,” IHS Markit’s Hayes said.

The European Central Bank raised its inflation projections last month and now sees inflation at 3.2% this year, well above its 2.0% target.

Reporting by Jonathan Cable; Editing by Catherine Evans

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