Jonathan Cable

LONDON, (Reuters) – The eurozone’s recovery was weakening despite a positive turn in Germany, where the factories benefited greatly from an easing supply chain bottlenecks. But, renewed restrictions put a dent on the bloc’s dominant service industry. A survey found that this.

While Omicron coronavirus is spreading across Europe, governments are encouraging people to remain at home. This has been in response to high prices that discourage consumers from spending.

HIS Markit’s Flash Composite Purchasing Managements’ Index (a good indicator of economic health) fell to 52.4 in January, from 53.3 December. This is its lowest point since February, and lower than the 52.6 forecast in Reuters’ poll.

This headline number was affected in part by the Services PMI which fell to a 9-month low but stayed in growth territory.

Customers staying at home meant that the growth of services demand almost stopped. This was just after parts of China’s economy were allowed to reopen following tighter controls.

Bert Colijn, ING said that the small drop in the composite flash PMI in January indicates Omicron’s impact on the service sector. However, the German economy did surprisingly well.”

Businesses in Germany https://www.reuters.com/world/europe/easing-supply-shortages-sustains-german-manufacturing-recovery-pmi-2022-01-24, Europe’s largest economy, expanded at their fastest pace in four months, earlier data showed, as factories enjoyed an easing in supply chain bottlenecks.

But in France https://www.reuters.com/world/europe/french-business-growth-weakens-by-more-than-forecast-january-flash-pmi-2022-01-24, the only other euro zone country to report preliminary numbers, business growth dipped more than forecast as the impact of COVID-19 and inflationary pressures weighed on activity.

It is clear that without Germany’s support, the bloc might have struggled further.

In Britain https://www.reuters.com/business/uk-businesses-suffer-january-chills-cost-pressures-rage-pmi-2022-01-24, outside the euro zone and the European Union, activity cooled unexpectedly to an 11-month low but cost pressures stayed high, leaving the Bank of England https://www.reuters.com/business/bank-england-raise-rates-again-february-inflation-surges-2022-01-21 on track to raise interest rates next week.

Further afield, factory activity in Japan https://www.reuters.com/markets/asia/japan-jan-factory-growth-hits-4-year-high-services-contract-flash-pmi-2022-01-24 grew at the fastest pace in four years although activity in the private sector as a whole slipped into contraction for the first time in four months as the services industry suffered amid a surge in coronavirus cases.

PRICE PRESSURES

The rising prices were also a problem for consumers. The euro zone composite output prices index matched November’s survey high, and comes after inflation https://www.reuters.com/world/europe/euro-zone-inflation-hits-5-marking-another-record-high-2022-01-07 hit a record last month, likely adding pressure on the European Central Bank to tighten policy.

However, restrictions are not as severe on factories and they have generally remained open. The manufacturing PMI in the bloc rose from 58.0 to 59.0 over five months, far more than the 57.5 Reuters poll.

The output index climbed to 55.7 from 53.8. This output indicator feeds into composite PMI. Its large increase shows the impact of the decline in services on overall activity.

According to the release, manufacturers have noticed some improvement in their supply chain problems. Colijn stated that there were some encouraging signs in December but things are now materially better in January.

In order to meet the demand, factories increased their headcount quickly. From 55.3 in July, the employment index rose to 57.5. This is its highest level since July.

A Reuters poll https://www.reuters.com/business/euro-zone-inflation-burn-hotter-ecb-rates-stay-ice-2022-01-19 last week found more than two-thirds of economists saying the Omicron variant would have a milder economic impact than Delta, and with the vaccine programme in the region continuing, optimism improved.

Composite future output index climbed to the highest level since Omicron began.

Andrew Kenningham from Capital Economics stated that the euro zone’s economic activity will pick up in February andMarch because of increased COVID-19 case numbers in some countries, and plans by some governments to loosen restrictions.