Eurozone service sector weakening cushioned by manufacturing gains

According to the report from IHS Markit, eurozone business activity fell for a fourth successive month in February, driven lower by a further slump in the service sector as virus-related restrictions continued to affect many businesses. The service sector downturn was offset, however, by faster manufacturing growth, led by Germany. Business expectations also improved to the highest for nearly three years as companies looked ahead to vaccine roll-outs allowing an easing of restrictions. Rising price pressures were evident, however, as surging demand for raw materials led to near record supply constraints, driving manufacturing input prices up at a rate not seen for almost ten years.

The headline flash Eurozone Composite PMI edged higher from 47.8 in January to 48.1 in February. By remaining below 50.0, the latest reading indicated a fourth consecutive monthly contraction of business activity, but also registered a slight easing in the rate of decline c ompared to January. Despite the rise in the PMI, the average reading of 47.9 for the first quarter so far is marginally lower than the average of 48.1 seen in the fourth quarter of last year. The sustained downturn therefore hints at a further deterioration in the economy as measures to control the coronavirus disease 2019 (COVID-19) pandemic continue to disrupt business activity across the region.

The deterioration in output was driven by the service sector, where activity fell at the fastest rate since November, registering the second steepest fall since last May largely in response to COVID-19 related restrictions. In contrast to the further weakening of service sector activity, manufacturing output growth accelerated to the fastest since October, and the second-fastest in three years, buoyed by surging inflows of news business.