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Euro Zone Services Hobbled in February: PMI

Business activity across the euro zone contracted again in February as lockdown measures to contain the coronavirus hammered the bloc’s dominant service industry, a survey showed, even as factories had their busiest month in three years.

With daily reported infections still high, governments have been encouraging citizens to stay home and closed much of the continent’s hospitality industry. Factories, meanwhile, have largely remained open.

IHS Markit’s flash composite PMI, seen as a good guide to economic health, nudged closer to the 50 mark separating growth from contraction, registering 48.1 in February compared to January’s 47.8. A Reuters poll had predicted 48.0.

However, some of that activity was from completing old orders. The backlogs of work index fell to 47.9 from 49.0.

“February PMI data reflect the current situation in the euro zone, where still-high infection rates and new variants spreading are forcing governments to extend and tighten lockdown measures, which affect many businesses,” said Maddalena Martini at Oxford Economics.

The euro zone economy is in a double-dip recession, according to last week’s Reuters poll of economists, who said the risks to their already weak outlook was skewed more to the downside.

A surge in demand for exports pushed activity in Germany’s manufacturing sector to a 36-month high, although lockdown measures to contain the pandemic pushed the services sector into a deeper contraction.

Meanwhile, French business activity also weakened further as COVID-19 restrictions hit services in the euro zone’s second-biggest economy, offsetting growth in manufacturing.

In Britain, outside the euro zone and the only other European nation to report a flash PMI reading, firms fared less badly during February’s lockdown than feared and were upbeat about the prospects for growth later in 2021, when they hope the roll-out of vaccines will allow a major relaxation of restrictions.


A PMI covering the euro zone’s services industry fell to 44.7 from January’s 45.4, well below the median expectation in a Reuters poll for 45.9.

But with vaccination programmes accelerating, driving hopes for a return to some form of normality, optimism about the year ahead improved sharply. The services business expectations index climbed to its highest since April 2018.

Consumer confidence among euro zone residents also rose this month, European Commission data showed on Thursday.

“While we expect economic growth to start a sharp recovery this year, it will clearly lag inflation as lockdowns are still set to continue for the short-term,” said Bert Colijn at ING.

Strong demand for manufactured goods helped the factory PMI soar to 57.7 from 54.8, the highest since February 2018 and well above all forecasts in a Reuters poll that predicted 54.3. An index measuring output, which feeds into the composite PMI, jumped to 57.5 from 54.6.

The new orders index also soared and factories hired additional staff for the first time in nearly two years. The employment index rose to 50.9 from 49.4.

Reporting by Jonathan Cable; Editing by Hugh Lawson

Source: Reuters

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