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22 Jan 2021 | 09:27

Eurozone heads for double-dip as business activity drops - PMI

(Sharecast News) - Eurozone business activity fell faster in January as companies were affected by the Covid-19 crisis and tightening restrictions, a survey showed. The flash IHS Markit composite purchasing managers' index dropped to 47.5 from 49.1 a month earlier - the third month in a row with a score of less than 50 which divided growth from contraction. December's score was broadly in line with the consensus forecast of 47.6 and made a further recession in the eurozone likely.

Factory output rose but weakened to the slowest pace since the recovery from the initial shock of the pandemic started. Services output fell at the second-fastest rate since May, taking the overall result into negative territory.

The deterioration spanned the single currency zone. Activity grew in Germany but at the slowest pace since July, reflecting Germany's large industrial sector. Output fell, and at a quicker rate, in France and the rest of the eurozone though the drops were less severe than in November.

Weakening manufacturing performance was caused by falling demand linked to Covid-19 but also to supply constraints. Shortages of shipping containers and congested ports have stopped parts getting to some factories. Service output dropped in Germany and all other markets as virus restrictions were tightened.

Chris Wiliamson, IHS Markit's chief business economist, said: "A double-dip recession for the eurozone economy is looking increasingly inevitable as tighter Covid-19 restrictions took a further toll on businesses in January. 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."

Employment in the eurozone fell for the 11th month running though small increases in Germany and France helped ease the rate of decline to the lowest since the pandemic started.

Expectations for output over the next 12 months diminished because of worries about Covid-19's impact on demand. Sentiment cooled in the services sector but improved for manufacturers leaving morale at the second-highest level since May 2018. Average rates charged for goods and services fell at their sharpest pace since September.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "These data hint that the road out of the Covid-19 misery will be a long one in the first half of the year. The economy is now taking another hit as restrictions are extended, and in many cases, intensified."

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