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Flash Eurozone PMI edges up from 47.8 in January to 48.1 in
February
Manufacturing expansion gains momentum, helping offset further
service sector weakness
Germany outperforms amid factory strength
Prices jump amid supply constraints
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. However, the impact was
alleviated by a strengthening upturn in manufacturing, hinting at a
far milder economic downturn than suffered in the first half of
last year.
The headline flash IHS Markit Eurozone Composite PMI® edged
higher from 47.8 in January to 48.1 in February. By remaining below
50.0, the latest reading indicated a fourth consecutive monthly
contraction of business activity, but also registered a slight
easing in the rate of decline compared to January.
Despite the rise in the PMI, the average reading of 47.9 for the
first quarter so far is marginally lower than the average of 48.1
seen in the fourth quarter of last year. The sustained downturn
therefore hints at a further deterioration in the economy - and a
double-dip recession - as measures to control the coronavirus
disease 2019 (COVID-19) pandemic continued to disrupt business
activity across the region.
Importantly, however, the last four months have seen the PMI
remain far higher than during the initial months of the pandemic in
the spring of last year, suggesting that the economic impact of the
second wave of virus infections has so far been much less severe
than during the first wave.
The deterioration in output was driven by the service sector,
where activity fell at the fastest rate since November, registering
the second-steepest fall since last May, largely in response to
COVID-19 related restrictions. In contrast, manufacturing output
growth accelerated to the fastest since October, and the
second-fastest in three years.
Germany outperforms
Particularly strong manufacturing growth meant Germany once
again outperformed, However, at 51.3 (up only modestly from 50.8 in
January) the composite index registered only a marginal expansion
due to the offsetting impact of weaker services.
At 45.2, down from 47.7, the equivalent composite index for
France meanwhile signalled the steepest deterioration since
November due to the faster service sector downturn. Business
activity also declined across the rest of the eurozone as a whole,
albeit at a reduced rate.
Greater optimism
Vaccine developments meanwhile helped business confidence to
revive, with firms across the eurozone becoming increasingly upbeat
about recovery prospects. Sentiment regarding output in the coming
12 months rose to the highest since March 2018, improving in both
manufacturing and services. 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.
Higher inflation
One concern is the further intensification of supply shortages,
which have pushed raw material prices higher. Supply delays have
risen to near-record levels, leading to near-decade high producer
input cost inflation. At the moment, weak consumer demand - notably
for services - is limiting overall price pressures, but it seems
likely that inflation will pick up in coming months.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
