Eurozone business activity slows as stricter lockdowns take heavy toll on service sector

Business activity in the eurozone fell to a two-month low in January, preliminary data revealed on Friday shows, as tougher coronavirus-related lockdowns come into effect to stop the spread of new Covid-19 strains.

HS Markit’s final Composite Purchasing Managers’ Index (PMI), which is considered a good gauge of economic health and combines both manufacturing and services, declined to 47.5 in January, versus 49.1 in December. PMI above the 50 level separates growth from contraction.

“Tighter COVID19 restrictions took a further toll on businesses in January,” Chris Williamson, the chief business economist at IHS Markit, said in a statement, adding that a double-dip recession for the region is looking “increasingly inevitable.”

“Output fell at an increased rate, led by worsening conditions in the service sector and a weakening of manufacturing growth to the lowest seen so far in the sector’s seven-month recovery,” the report says.

Earlier this week, President of the European Central Bank Christine Lagarde acknowledged that the growing number of cases and new pandemic-related lockdowns across the region are disrupting economic activity, posing “serious risks” to the eurozone economy.

“Activity in the manufacturing sector continues to hold up well, but services sector activity is being severely curbed, albeit to a lesser degree than during the first wave of the pandemic in early 2020,” Lagarde said during a press conference after the ECB meeting.

She also expressed concern over the slow vaccination roll-out across the EU amid the new Covid-19 strains. The regulator decided to keep interest rates and its wider stimulus programs unchanged after releasing additional support in December.

“In this environment ample monetary stimulus remains essential,” Lagarde said.

According to the ECB outlook, the eurozone’s GDP will grow 3.9 percent in 2021, and 2.1 percent in the next year. This is after a significant drop of 7.3 percent last year. The regulator added that the numbers are highly dependent on the outcome of the pandemic.

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