Euro zone business activity dips again in February despite manufacturing upturn

• IHS Markit's flash composite PMI for the euro zone, which looks at activity across both manufacturing and services, rose slightly to 48.1 in February versus 47.8 in January.
• The European Central Bank estimated that the euro area's GDP in 2021 will climb by 3.9%.
• However, the forecast is highly dependent on the evolution of the pandemic and there are fears that variants of the virus could derail economic growth even further

LONDON— European business activity improved slightly in February but showed a continued contraction as Covid-19 social restrictions drag on, according to preliminary data released on Friday.

The euro zone is still struggling with the coronavirus pandemic, with most countries restricting people's movements to contain the number of infections. At the same time, the vaccination rollout is still far from where European leaders would like to see it amid red tape, production and supply issues.

Nonetheless, IHS Markit's flash composite PMI for the euro zone, which looks at activity across both manufacturing and services, rose slightly to 48.1 in February versus 47.8 in January. A reading below 50 represents a contraction in activity.

The services sector, the most hit by lockdowns and curfews, saw activity dropping to a three-month low, whereas manufacturing hit a 36-month high.

"Ongoing Covid-19 lockdown measures dealt a further blow to the eurozone's service sector in February, adding to the likelihood of GDP falling again in the first quarter," Chris Williamson, chief business economist at IHS Markit, said in a statement.

"If you are making trains and planes at the moment you are having a rough time but on the other hand there is a lot of activity picking up around the world which is benefitting exporters," Williamson told CNBC's "Street Signs Europe" on Friday.

The European Central Bank estimated that the euro area's GDP in 2021 will climb by 3.9%. However, the forecast is highly dependent on the evolution of the pandemic and there are fears that variants of the virus could derail economic growth even further if the vaccines prove less effective for new strains.

French struggles

In France, business activity saw the fastest decline in three months during February. The country has not introduced a full third lockdown, fearing the population will not fully comply with it, but other tough measures are in place such a curfew. Its flash composite PMI came in at 45.2, from 47.7 in January.

"The latest PMI data suggested that the French private sector is continuing to struggle amid the ongoing Covid-19 crisis," Eliot Kerr, economist at IHS Markit, said in a statement.

German resilience

Meanwhile in Germany, the flash composite PMI hit 51.3 in February, a two-month high. The latest data showed a further contrast between the services and the manufacturing sector. Whereas services activity dropped to a nine-month low, manufacturing output rose to a 36-month high.

Phil Smith, associate director at IHS Markit, said that the numbers "point to ongoing resilience in the German economy midway through the opening quarter, despite the country remaining under strict lockdown measures."

"Ongoing weakness in services, where large parts of the sector remain either closed or disrupted by virus containment measures, continues to be counterbalanced by strong, export-driven growth across manufacturing," he added.

Source: Read Full Article