Eurozone business activity contracts more than thought in December
By Michele Maatouk
Date: Wednesday 06 Jan 2021
(Sharecast News) - Business activity in the eurozone contracted more than initially estimated in December 2020 as the Covid-19 pandemic took its toll, according to a survey released on Wednesday.
IHS Markit's final composite purchasing managers' index for the bloc - which measures activity in both the manufacturing and services sectors - rose to 49.1 from 45.3 in November, but was below the flash estimate of 49.8.
A reading below 50.0 indicates contraction, while a reading above signals expansion.
The business activity index for the services sector printed at 46.4 in December, up from 41.7 the month before but below the flash reading of 47.3.
Chris Williamson, chief business economist at IHS Markit, noted that the eurozone economy contracted for a second successive month in December, due to intensifying Covid-19 restrictions.
"Service sector activity in particular fell more sharply than estimated by the earlier 'flash' PMI estimate, as more countries stepped up their fights against rising virus case numbers," he said.
"While the data indicate a renewed decline in eurozone GDP in the fourth quarter, the downturn appears to have been far less severe than seen in the second quarter, thanks to sustained strong manufacturing growth, rising global trade and lockdowns having been less onerous than earlier in the year.
"Worse may be yet to come before things get better, especially as the latest survey data were collected before the news of the new - more contagious - strain of the virus."
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said there's no point getting caught up in the details.
"Eurozone services activity was still held back significantly in December, thanks to mandated closures and social distancing. As such, all the rising headline means is that the balance between firms reporting deteriorating business conditions and those with improving or unchanged conditions rose, slightly. That's positive, but it doesn't change the story for Q4 as a whole, where GDP likely took a big hit, driven mainly by weakness in services spending and investment.
"Our baseline is that GDP fell by 2-to-3% quarter-on-quarter in Q4. Our forecast for Q1 is for only a modest rebound at 0-to-0.5%."
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