Rising Covid-19 infection rates and greater caution resulting from the uncertain threat of a new variant have weakened Europe’s economic recovery, but there are signs the supply blockages that have hobbled factories over recent months are easing.
Even before the existence of the Omicron variant was confirmed in late November, infection rates in Germany and other parts of Europe were on the rise, prompting a fresh wave of government restrictions and consumer hesitancy. Signs that Omicron can spread faster than the currently dominant Delta virus have only added to those headwinds.
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Surveys of purchasing managers released Thursday by data firm IHS Markit showed that in the early weeks of December, activity in most parts of the eurozone’s services sector slowed, while in Germany activity declined for the first time in eight months.
As a result, the composite Purchasing Managers Index for the eurozone—a measure of activity in both the services and manufacturing sectors—fell to 53.4 in December from 55.4 in November, hitting its lowest level since March. A reading above 50.0 indicates an increase in activity, while a measure below that threshold points to a decline.
“Strong recoveries are being dampened by the latest wave of the virus,” said Bert Colijn, a senior economist at ING Bank.
By contrast, the currency area’s manufacturing sector saw output increase at a faster pace as supply problems eased, with factories reporting slightly slower increases in the prices they paid for raw materials and other inputs, as well as the prices they charge their customers.
“Easing supply constraints have alleviated some of the upward pressures on inflation, though the overall rate of price increase in December was still the second-highest on record,” said Chris Williamson, chief business economist at IHS Markit. “While inflation could soon peak, the rate of increase remains elevated.”
Similar surveys for the U.S. to be released later Thursday are expected to record a slight acceleration in growth in both services and manufacturing.
While the Delta variant continued to dominate in the eurozone during the survey period, the U.K. has seen a surge in infections by the Omicron variant, which is expected to become the dominant form of the virus in the country within days.
How Britain fares against Omicron will offer clues to the U.S. and the rest of the industrialized world about how the variant behaves in a highly vaccinated population, how sick those who are infected get and if its dozens of mutations have given Omicron enough of an advantage on the evolutionary ladder to starve Delta of the hosts it needs to stay on top.
The government has responded by reimposing some public-health restrictions, while mobility data indicates that Britons have become more cautious about activities that involve physical proximity with other people.
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According to the survey of purchasing managers, that led to a sharp slowdown in the services sector during the first weeks of December, although unlike its German counterpart, it continued to grow.
“The positive gains over the last 10 months were wiped out by yet another round of restrictions and curbs on consumers and businesses,” said Duncan Brock of the Chartered Institute of Procurement Supply, which helps conduct the survey.
There were also signs of slowing growth in Japan and Australia, although the new variant doesn’t appear to have been a big factor, with businesses instead pointing to supply problems as a significant challenge.
Write to Paul Hannon at [email protected]
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