Service sector leads further contraction of eurozone economy

According to the report from IHS Markit, the eurozone’s private sector endured a challenging start to 2021, with output declining for a third successive month and at an accelerated rate. This was highlighted by the seasonally adjusted Eurozone PMI Composite Output Index which recorded 47.8 in January, down from 49.1 in the previous month.

Services was once again the main drag on the economy, with activity in this sector contracting for a fifth successive month and also at a sharper rate than in December. Manufacturing remained a bright spot, with production rising for a seventh successive month albeit at the lowest rate in this growth sequence.

Of the largest eurozone members, only Germany recorded a rise in private sector output during January, although growth here weakened to its lowest level for seven months. All other nations recorded a contraction in activity, although there were noticeable divergences.

Latest eurozone data indicated a solid fall in levels of incoming new work for a fourth month running. Ongoing restrictions related to dealing with COVID19 remained the primary factor weighing on sales across the bloc, especially in local markets as export business continued to improve, rising modestly for a second month in succession. Meanwhile, a net fall in staffing levels was recorded during January, extending the current downturn to 11 months. However, the rate of contraction was marginal and the weakest in the current sequence of falling job numbers. Firms were again able to comfortably keep on top of workloads as evidenced by another drop, albeit marginal, in levels of work outstanding. 

Finally, confidence about the future remained in positive territory during January, with the degree of optimism little-changed since the previous month. Sentiment was firmly linked to hopes of a successful rollout of a COVID-19 vaccine in the coming months.

The Eurozone PMI Services Business Activity Index fell further below the 50.0 no-change mark in January, slipping to 45.4 from December’s 46.4. Latest data marked the fifth successive month in which the index has posted a reading below the 50.0 no-change mark.