The eurozone economy is being dealt yet another blow from COVID-19, with rising infection levels dampening service sector growth to result in a disappointing end to 2021, according to UK-based IHS Markit. Germany is being especially hard hit, seeing the economy stall for the first time in a year-and-a-half, but the growth slowdown is broad based across the region.

However, encouragement comes from the manufacturing sector, where the strain on supply chains is showing some signs of easing, in turn helping to revive factory production, it said.

These easing supply constraints have alleviated some of the upward pressures on inflation, though the overall rate of price increase in December was still the second highest on record. While inflation could soon peak, the rate of increase remains elevated, it said in a press release.

The eurozone economy is being dealt yet another blow from COVID-19, with rising infection levels dampening service sector growth to result in a disappointing end to 2021, according to IHS Markit. Germany is being especially hard hit, seeing the economy stall for the first time in a year-and-a-half, but the growth slowdown is broad based across the region.

Looking ahead, the Omicron variant poses downside risks to the growth outlook as the world heads into 2022, and any accompanying disruption to supply chains could result in price pressures spiking higher again.

The headline IHS Markit Eurozone Composite purchasing managers index (PMI) in the zone dropped by two points from 55.4 in November to 53.4 in December, according to the ‘flash’ reading, indicating an easing in the rate of output growth to the lowest since March.

The December slowdown was led by the service sector, where business activity grew at the weakest rate since April. Slower service sector activity growth was in turn led by a steep fall in tourism and recreation activity of a similar magnitude to the declines seen at the start of the year amid rising COVID-19 infection rates and associated restrictions across the region.

Inflows of new business into the service sector in the Eurozone also slowed, dropping to the lowest since the recovery from early-2021 lockdowns began in May, IHS Markit said.

By country, growth stalled in Germany due to the first drop in new orders for goods and services since June 2020, ending a 17-month recovery. A renewed fall in service sector activity outweighed a pick-up in manufacturing production growth.

France meanwhile continued to grow at a solid pace, albeit down on November, as a relatively resilient service sector helped offset a decline in manufacturing output for the second time in the past three months.

The rest of the region recorded the slowest expansion since April, with growth moderating in both manufacturing and services, though rates of increase remained well above long-run averages.

Fibre2Fashion News Desk (DS)