Europe in crisis as economic growth plummets to nine month low

Merkel 'never stood up for a vision of Europe' says expert

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After a brief recovery in November growth fell to its slowest pace in nine months according to IHS Markit’s Eurozone PMI Composite Output Index. The much-followed index, which tracks variables such as sales, employment and prices, slipped from 55.4 in November to 55.3 in December. While manufacturing output had already been struggling due to difficulties with supply chains, the service sector has now emerged as a key drag on growth. In fact, manufacturing output growth is now even outpacing that of services.

Joe Hayes, Senior Economist at IHS Markit, commented: “The spread of the Omicron variant had a particularly profound impact on the services sector, reflecting renewed hesitancy among customers due to the novel strain of the virus.

“Looser travel restrictions in recent months had facilitated greater levels of tourism, which in turn provided additional support to the eurozone service sector.

“However, this was withdrawn in December as overseas demand declined for the first time since May.”

A number of European countries have seen tough measures brought in over Covid, both restricting business activity and reducing consumer confidence.

The Netherlands re-introduced lockdown leading to protests this week while Austria has imposed restrictions on those unvaccinated.

In Germany, which has restricted private gatherings and large events, economic growth was found to have broadly stagnated in December.

Melanie Debono, Senior Eurozone Economist at Pantheon Macroeconomics, predicted further falls in the PMI should be expected.

Angel Talavera, Head of European Economics at Oxford Economics, said the figures added: “further evidence that European economies were slowing down towards the end of last year, in particular in places where Covid restrictions were already imposed earlier and were harsher such as in Germany.”

Country by country Germany experienced one of the biggest slumps in growth with PMI reaching an 18 month low of 49.9.

Ireland had the highest at 56.5, although still a nine-month low for the country.

Across the Eurozone all countries experienced some level of decline in December.

Mr Talavera said: “I think it is likely we will see a continuation of this trend over the winter months given the impact of Omicron, but it is also notable that those PMI numbers are still fairly resilient, demonstrating that the Eurozone economy is dealing with this new wave better than during last winter.”

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While expectations have grown that Omicron may prove mild the Eurozone also faces pressure from inflation with both input and output costs rising at the second-fastest level on record.

Mr Hayes said despite a “marginal easing” inflation put the Eurozone in “excessively hot territory”.

Further figures for Eurozone inflation will come out on Friday with previous levels at 4.9 percent, over twice the European Central Bank’s target.

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