Faster eurozone upturn marred by inflation, COVID worries: IHS Markit

A mix of near-record supply delays, an unprecedented surge in prices and renewed COVID-19 worries has meanwhile pulled business optimism to the lowest since January, adding to near-term downside risks for the eurozone economy, IHS Markit said in a research analysis piece.

Although indicating an improvement in the rate of growth from October's six-month low and remaining above the survey's pre-pandemic long-run average of 53.0, the average headline Eurozone Composite PMI reading for the fourth quarter so far, at 55.0, is substantially lower than the 58.4 average seen in the third quarter, pointing to a weakening of economic growth in the closing quarter of 2021.

By sector, services outperformed manufacturing for a third straight month, recording the strongest growth of activity for three months. Growth also picked up in manufacturing, though remained the second-weakest seen over the past 17 months.

Both sectors saw growth improve on the back of slightly stronger inflows of new business, yet in both cases rates of growth of demand remained well below that seen during the summer months.

In manufacturing, growth was held back in particular by a third successive monthly drop in production in the autos sector. More positively, especially robust expansions were seen for tech equipment, food & drink and household goods.

By country, growth accelerated in Germany and France, with the latter recording the stronger expansion for the second month in a row thanks to the sharpest rise in services activity for nearly four years, which offset a second successive monthly drop in factory output. The rest of the region as a whole meanwhile enjoyed faster growth of both manufacturing and services than seen in France and Germany.

Especially weak factory output growth was again seen in Germany alongside a subdued service sector expansion, though in both sectors, the rate of growth improved on October.

Weak factory output growth was again commonly attributed to supply constraints. Suppliers' delivery times continued to lengthen at one of the steepest rates seen over more than two decades of survey history, easing only modestly compared to October, amid ongoing supply shortages and transport problems.

Finally, future output expectations deteriorated to the lowest since January. Ongoing concerns over supply chain issues were exacerbated by growing worries about the impact of further COVID-19 waves, which darkened the outlook for services in particular. Optimism in manufacturing improved from October's one-year low, though remained subdued by supply and price worries.

The manufacturing sector remains hamstrung by supply delays, and the service sector's improved performance may meanwhile prove frustratingly short-lived if new virus fighting restrictions need to be imposed.

Fibre2Fashion News Desk (DS)