Eurozone growth beyond expectations but still in the red

Shiva Singh
Eurozone or the euro area facing economic recession and decline of economy due to coronavirus or covid-19 crisis. European union (EU) flag, red stock chart and block letters on black background.

Brussels (Brussels Morning) While economic performance of the eurozone looks to exceed expectations in December, it is still in the red, according to IHS Markit’s survey, Reuters reports. 

The IHS purchasing managers’ index (PMI) stands at 49.8 points for December, in contrast with November’s 45.3 and Reuters poll prediction of 45.8. The PMI serves as an indicator of economic activity, with the 50 mark separating decline from growth.

While the manufacturing sector is showing signs of strong growth, the services sector remains in decline, a reflection of the restrictions imposed to curb the spread of coronavirus.

Restrictions jeopardise recovery

Capital Economics consultancy’s Jessica Hinds notes the PMI growth largely reflects the easing of restriction in France and hopes that eurozone GDP will not drop as steeply as had been feared in the final quarter this year. However, as EU member states impose more severe restrictions in the fight against the latest wave of coronavirus infections, the services sector will remain weak, she concludes.

According to a Reuters poll earlier this month, eurozone GDP should drop 2.6% in the fourth quarter this year. Recent surveys show the German economy is showing resilience thanks to the private sector, while the lifting of some restrictions in France brought about unexpected growth of economic activity.

On the downside, Germany imposed strict measures earlier this week which are to remain in effect until 10 January at the earliest, while in France, many businesses in the services sector remain closed despite this week’s easing of restrictions.

Services most affected

PMI in the EU’s services sector reached 47.3 points this month, up from 41.7 in November and significantly higher than the 41.9 predicted by the Reuters survey. The services sector continued with layoffs in December, a trend expected to continue given the restrictions and low activity.

Meanwhile, the employment index stood below 50, at 49.4, but nonetheless represented some improvement compared to 48.2 in November.

Manufacturing PMI reached 55.5 this month, up from 53.8 in November and the highest since May 2018, since factories were not affected as severely by restrictions, many managing to remain open and function.

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Shiva is a professional digital marketer who covers the latest updates in the tech industry from across the globe. With an experience of over 5 years in the world of Information Technology, he likes to keep up with every major development and writes fact-based pieces backed by in-depth research.