The Eurozone economy is doing well, but the Covid-19 outbreak has resurfaced, putting a pall over economic forecasts.
The PMI indices, which represent corporate confidence in the monetary union and are leading indicators of economic growth, climbed in November, above economists’ predictions.
“The better-than-expected PMI indicates that the Eurozone economy accelerated its recovery in the fourth quarter. Of course, the rate of growth is slowing, but it’s still positive that supply constraints and rising prices haven’t slowed the economy’s momentum “Bert Colijn, an economist at ING, agrees.
However, not all industries are in the same position.
Unsurprisingly, the poll conducted by IHS Markit finds that the the automobile industry is hampering the manufacturing sector. Which has seen its production fall for the third month in a row.
The pace of expansion, on the other hand, is particularly rapid in the sub-sectors of technology equipment, beverages, food, and domestic products.
Except for tourism and leisure activities, the situation in services continues favorable, with the PMI at a three-month high.
However, with the exponential surge in infections in some European countries, the economic recovery may lose its luster.
“If the deteriorating health situation leads to the imposition of new limitations, the upturn in the services sector could be short-lived,” says Chris Williamson, chief economist at IHS Markit.
Implemented health limitations have varying degrees in Austria, Germany, the Netherlands, and Ireland.
Furthermore, if the tightening of protective measures is extended, it could result in a contraction of activity in Q4. UBS economists are predicting the most pessimistic scenario. And despite the Swiss bank’s experts expecting 0.8 percent quarterly growth over the period.
Fears of inflation.
The European Central Bank is walking on eggshells to maintain financial stability in this delicate health scenario. Which is further exacerbated by the threat of higher-than-expected inflation.
Despite the recent spike in Covid cases, the Governing Council appears to have reached an agreement to stop the particular asset purchase program PEPP (pandemic emergency purchase program) next March.
On December 16, the ECB’s monetary policy committee will decide its posture.