Euro area activity drops to 9-month low on resurgent virus

Bloomberg

Euro area economic activity slowed as rising coronavirus cases hurt service providers to offset an improvement in manufacturing output. Inflation pressure eased a little.
A composite gauge for both sectors fall to 53.4 in December from 55.4 the previous month, according to a survey of purchasing managers by IHS Markit. Services activity grew at its weakest since April as people avoided tourism and other recreation.
The data come with the European Central Bank (ECB) poised to decide how to
withdraw billions of euros of
pandemic stimulus while safeguarding the continent’s economic recovery through the latest wave of Covid-19.
IHS Markit said industry-output growth picked up this month — partly thanks to an easing of supply constraints that also “cooled” inflation pressures — though increases in new orders weakened.
“Most notably autos production has risen for the first time since August,” said Chris Williamson, chief business economist at IHS Markit.
Still, overall activity was particularly affected in Germany, where the economy stalled for the first time in a year and a half. Other countries also saw a broad-based slowdown.
“The euro-zone economy is being dealt yet another blow from Covid-19, with rising infection levels dampening growth in the service sector
in particular to result in a
disappointing end to 2021,” Williamson said. “Looking ahead, the Omicron variant poses further downside risks to the growth outlook.”
The euro area inflation is seen fading in coming months
The worst is over for firms and households feeling the pinch of higher prices in the euro area as inflation are fading from a record high, according to Bloomberg’s latest survey of economists.
While the peak in price growth at the end of 2021 will have been greater than previously forecast, the rate is set to fall below the European Central Bank’s 2% target by the end of 2022. That forecast takes some pressure off the institution’s Governing Council, which is due to begin plotting a course out of crisis-era stimulus.