Eurozone on Brink of Recession Amid Covid Wave, Slow Vaccine Rollout
22 January 2021 - 10:46PM
Dow Jones News
By Paul Hannon
The eurozone economy has suffered a weak start to the year, with
high coronavirus infection rates and government restrictions
increasing the risk of a second recession since the pandemic first
struck last year.
Fresh Covid-19 outbreaks that authorities have struggled to
contain are continuing to weigh on economic activity and have
damped expectations for a strong global recovery in the first half,
although the start of vaccination campaigns has raised hopes for a
stronger rebound in the second.
In the early months of the year, a number of large economies
face the threat of declining output as restaurants, cinemas and a
wider range of businesses that involve close physical proximity are
closed or have had their activities severely curtailed.
Data firm IHS Markit said its composite Purchasing Managers
Index, which measures activity in the manufacturing and services
sectors, for the eurozone fell to 47.5 in January from 49.1 in
December. A reading below 50.0 points to a decline in activity.
A similar survey for Japan pointed to a bigger contraction in
the services sector, while figures for the U.S. to be released
later Friday are expected to point to a slowdown in the services
recovery.
The eurozone PMI has pointed to a contraction in the economy for
three straight months, and there seems little prospect of a
significant easing in the pandemic over the remaining months of the
first quarter, which will end in March.
One widely used definition of a recession is two straight
quarters of declining gross domestic product. Eurozone GDP fell in
both the first and second quarters of last year, and economists and
policy makers fear another, albeit much smaller, drop in the fourth
quarter of last year and the first quarter of this.
"A double-dip recession for the eurozone economy is looking
increasingly inevitable," said Chris Williamson, IHS Markit's chief
business economist.
The tightest lockdown since April had a particularly chilling
effect on the U.K.'s economy, which saw the largest drop in its PMI
of those released Friday. The measure for the services sector
slumped to 38.8 from 49.4 in December, reaching its lowest level
since June.
However, some parts of Europe's economy proved more resilient,
with Germany continuing to record an expansion that was partly
driven by exports to China and the U.S.
Despite a difficult start to 2021, the eurozone businesses
surveyed by IHS Markit said they were increasingly confident about
their prospects later in the year as vaccination programs extend to
an ever larger share of the population.
Speaking at a news conference Thursday, European Central Bank
President Christine Lagarde added a note of caution to that
optimism.
"The rollout of vaccines, which started in late December, allows
for greater confidence in the resolution of the health crisis," she
told reporters. "However, it will take time until widespread
immunity is achieved, and further adverse developments related to
the pandemic cannot be ruled out."
While the surveys of purchasing managers continue to point to a
recession, some other indicators have shown surprising strength,
most notably measures of manufacturing output.
The ECB on Friday said that 20 economists at banks and research
institutes it had surveyed between Jan. 7 and 11 estimated that the
eurozone economy shrank 2.5% in the final three months of 2020, and
would likely stagnate in the first three months of this year. If
those estimates prove correct, the eurozone would very narrowly
avoid a second recession.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
January 22, 2021 06:31 ET (11:31 GMT)
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