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Eurozone business activity growth slowed for a second successive
month in January as the spread of the Omicron variant took an
increasing toll on the region's economy. Although an alleviation of
supply chain delays provided a welcome boost to manufacturing
production, renewed COVID-19 restrictions led to a marked slowing
in service sector growth.
While average prices charged for goods and services rose a rate
unsurpassed in the series so far, an easing of producer input cost
inflation hinted at a cooling of upward raw material price
pressures.
IHS Markit Eurozone PMI and GDP
Economy slows in December 2021
The headline IHS Markit Eurozone Composite PMI® dropped two
points from 55.4 in November to 53.4 in December, according to the
'flash' reading*, indicating an easing in the rate of output growth
to the lowest since March. The decline takes the average reading
for the fourth quarter to 54.3, substantially lower than the 58.4
average seen in the third quarter. As such the PMI data point to a
marked weakening of economic growth in the closing quarter of 2021,
albeit with the rate of growth remaining above the survey's
pre-pandemic long-run average of 53.0.
Service sector hit by COVID-19
The headline IHS Markit Eurozone Composite PMI® dropped for a
second month running at the start of 2022, down from 53.3 in
December to 52.4 in January, according to the 'flash' estimate*.
The latest reading indicates the slowest rate of output growth
since the recovery from lockdowns in early 2021 began last
March.
However, the slowdown masked wide variations in performance by
sector. Service sector output growth slowed sharply for a second
month running, dropping to its lowest since last April, amid
soaring COVID-19 infection rates. The rapid spread of the Omicron
variant led to the reimposition of many measures to contain the
virus in recent weeks, notably in Germany, France, Italy and Spain,
which adversely affected consumer- and hospitality-oriented
businesses in particular. According to IHS Markit's COVID-19
Containment Index, restrictions in January have risen to their
tightest since May of last year across the eurozone. Companies also
often reported that staff absenteeism due to illness or the need to
self-isolate also inhibited activity.
Tourism and recreation activity consequently fell at a rate not
seen since last February, with transportation and media work also
in decline. However, many other business service providers and
financial services firms continued to report solid growth, being
less affected by the Omicron wave than consumer-facing
industries.
Manufacturing supply crunch eases
Manufacturing growth meanwhile accelerated to the fastest since
last August. Although staffing issues curbed output in some
factories, supply constraints eased, helping boost production in
many firms. Average supplier delivery delays lengthened to the
least extent since January of last year, with fewer items reported
in short supply and shipping delays showing signs of easing. Growth
was recorded in all major manufacturing sectors, including a second
consecutive month of rising production in the auto sector.
Eurozone PMI output growth by sector
Germany rebounds, bucking slowdown
By country, business activity rebounded in Germany after a slide
into mild contraction in December, registering the strongest
expansion since September thanks to a surge in factory production
and a return to growth for the service sector. In contrast, growth
in France hit the lowest since April, reflecting a near-stalled
factory sector and a sharply weaker service sector performance.
Meanwhile, growth ground almost to a halt across the rest of the
region as a whole amid a renewed contraction of services
activity.
Composite PMI output growth
Survey high price inflation
Average selling prices measured across both manufacturing and
services meanwhile picked up to grow at a rate matching the survey
all-time high recorded in November. A new record was seen in the
service sector as costs were driven higher by energy and wage
costs. Prices charged for goods leaving the factory gate also rose
at an increased rate, just shy of November's survey high, though an
easing in manufacturers' input price inflation to the lowest since
last April was also reported, linked in part to the alleviating
supply crunch.
Eurozone manufacturing prices and supply
delays
Eurozone prices
Eurozone inflation
*The flash estimate is typically based on approximately
85%-90% of total PMI survey responses each month and is designed to
provide an accurate advance indication of the final PMI
data.
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.
