IHS Markit: Eurozone takes a growth hit as fourth COVID-19 wave hits, 'Price Pressures & Supply Constraints Ease' in December 2021

18 December 2021, Mumbai:

The eurozone economy is being dealt yet another blow from COVID-19, with rising infection levels dampening growth in the service sector, in particular, to result in a disappointing end to 2021. Germany is being especially hard hit, seeing the economy stall for the first time in a year-and-a-half, but the growth slowdown is broad-based across the region.

Encouragement comes from the manufacturing sector, however, where the strain on supply chains is showing some signs of easing, in turn helping to revive factory production.

These easing supply constraints have alleviated some of the upward pressures on inflation, though the overall rate of price increase in December was still the second-highest on record. While inflation could soon peak, the rate of increase remains elevated.

Looking ahead, the Omicron variant poses downside risks to the growth outlook as we head into 2022, and any accompanying disruption to supply chains could result in price pressures spiking higher again.

Economy slows in December

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 December slowdown was led by the service sector, where business activity grew at the weakest rate since April.

Slower service sector activity growth was in turn led by a steep fall in tourism and recreation activity of a similar magnitude to the declines seen at the start of the year amid rising COVID-19 infection rates and associated restrictions across the region. Inflows of new business into the service sector also slowed, dropping to the lowest since the recovery from early-2021 lockdowns began in May.

Manufacturing output growth meanwhile picked up, the factory sector outpacing services for the first time in five months, yet remaining well below rates of expansion seen earlier in the year.

Despite manufacturers reporting a weakening of new order growth, December saw the largest expansion of production since September thanks to an easing of supply constraints.

IHS Markit  

(The news article has not been edited by DFU Publications staff)

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