A person over 75 years old receives a coronavirus (Kovid-19) vaccine in Strasbourg, France.
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LONDON – Business activity in the euro area fell to a two-month low in January, with preliminary data on Friday showing the back of a tight coronovirus-related lockdown.
The region is witnessing increasing rates of rising Kovid-19 infection and strict restrictions as new strains of the virus have spread, adding to the economic crisis.
Markit’s Flash Composite PMI for the euro zone, which sees activity in both manufacturing and services, hit 47.5 in December, versus 49.1 in December. Reading below 50 indicates a contraction in activity.
Chris Williamson, chief business economist at IHS Markit, said the dual-dip recession for the euro zone is “accelerating.”
“The tight Kovid-19 ban took another toll on businesses in January,” it said in a statement. “
“Output declined at an increased rate, worsening the situation in the services sector and weakening the lowest ever seen manufacturing growth in the manufacturing sector’s seven-month recovery.”
European Central Bank President Christine Lagarde admitted on Thursday that the epidemic is still a “serious risk” to the euro area economy.
In addition to the new Kovid variants, there is also concern over a slow vaccination roll-out in the European Union.
“Adequate monetary stimulus remains necessary in this environment,” Lagarde said. The ECB decided in a meeting on Thursday to keep interest rates and its broader stimulus programs, for which it extended its support in December.
The ECB expects an expansion of 3.9% of the euro zone’s gross domestic product (GDP) in 2021 and 2.1% in 2022. This is after a contraction of 7.3% last year. However, these forecasts are dependent on the development of the epidemic.
France hires more
Earlier, France’s business activity figures also hit a two-month low, indicating curfew enforcement across the country. The country’s overall PMI for January was 47, leading to contraction.
However, French businesses hired more employees in January – the first increase in job figures in nearly a year.
“The fact is that firms have shown some confidence in the points of recruitment activity for economic recovery in the second half of this year,” IHS Markit economist Elliot Kerr said in a statement.
In Germany, business activity managed to grow slightly in January, with the Flash Composite Output Index peaking at 50.8. However, the reading represented a seven-month low for Europe’s economic engine.
Phil Smith, Associate Director at IHS Market, highlighted the slow pace in manufacturing activity in the country, and a steady hit in the services sector during January.
“All in all, the German economy has had a slow start to the year, and the expansion of existing containment measures, at least until mid-February, means it looks like the picture for many more weeks to come,” he said.
The German government decided a few days ago to extend the national lockout by 14 February.