Euro Zone Economic Recovery Stumbled in December as Omicron Spread: PMI

January 5, 2022Updated: January 5, 2022

LONDON—The euro zone’s economic recovery stuttered in December as a renewed wave of COVID-19 infections curtailed growth in the bloc’s dominant service industry, a survey showed on Wednesday, and could weaken further if tighter restrictions are imposed.

As the Omicron coronavirus variant spread rapidly at the end of last year governments reimposed measures to contain infection rates, particularly in Germany, Europe’s largest economy.

That meant IHS Markit’s Composite Purchasing Managers’ Index (PMI), a good gauge of overall economic health, sank to 53.3 in December from 55.4 in November, its lowest since March.

While the final reading was below an earlier 53.4 “flash” estimate it did hold above the 50 mark separating growth from contraction.

“The final Composite PMIs for December confirm that the euro zone economy ended 2021 on a weak note. The economy lost momentum at the end of last year but still appeared to be expanding,” said Jack Allen-Reynolds at Capital Economics.

Restrictions to contain the coronavirus dampened activity in Germany’s services sector and concerns over the Omicron variant clouded the outlook for January, while in France growth came in slightly below an initial estimate as the pandemic weighed.

Consumer confidence in France—the bloc’s second-biggest economy—nevertheless improved last month.

With customers encouraged to stay at home the euro zone’s services industry saw growth wane. Its PMI dropped to an eight-month low of 53.1 from November’s 55.9, below a 53.3 preliminary reading.

Weaker demand and the threat of further restrictions on the horizon meant services firms increased headcount at the slowest pace since May. The employment index fell to 53.6 from 55.4.

A factory PMI released on Monday, which showed manufacturing activity remained resilient in December, suggested an easing of supply chain bottlenecks had alleviated some price pressures.

But the composite input prices index stayed high at 74.1, albeit below November’s 76.0. The output prices index fell but remained elevated.

The European Central Bank raised its inflation projections last month and now sees inflation at 3.2 percent this year, well above its 2.0 percent target.

By Jonathan Cable