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Eurozone business activity unexpectedly jumps but outlook darkens

By Abigail Townsend

Date: Tuesday 23 Nov 2021

Eurozone business activity unexpectedly jumps but outlook darkens

(Sharecast News) - Business activity across the Eurozone unexpectedly strengthened in November, a closely-watched survey showed on Tuesday, but record inflationary pressures and surging Covid-19 cases weighed on the outlook.
The flash IHS Markit Eurozone Composite PMI rose for the first time in four months in November, to 55.8 compared to October's six-month low of 54.2. November's flash reading was a two-month high and well above the consensus for a reading of 53.2.

Within that, the Services PMI Activity Index was 56.6, compared to 54.6 a month earlier while the Manufacturing PMI rose to 58.6 from 58.3. The Eurozone Manufacturing PMI Output Index nudged higher, to 53.8 from 53.3.

The rate of job creation reached its second-fastest pace in more than 21 years, as companies looked to meet strong demand. But input costs and the average selling prices charged for goods and services both rose at record rates.

Coupled with renewed concerns about Covid-19 and ongoing supply constraints, the outlook fell to a 10-month low.

Chris Williamson, chief business economist at IHS Markit, said: "A stronger expansion of business activity in November defied economists' expectations of a slowdown, but it is unlikely to prevent the Eurozone from suffering slower growth in the fourth quarter, especially as rising virus cases look set to cause renewed disruption to the economy in December."

A number of countries have been forced to reintroduce restrictions as Covid-19 cases soar across the continent, including Belgium, the Netherlands and Austria, which has announced a full national lockdown.

Kallum Pickering, senior economist at Berenberg, said: "While monthly data can be volatile, the news is a bright spot in the current climate of heightened risks. The November results point to a strong underlying momentum in the European economy."

Looking forward, however, he added that the outlook for the fourth quarter was uncertain. "Rising inflation and the risk of more widespread Covid-19 restrictions will restrain the pace of economic momentum across Europe during the final quarter of the year.

"While services activity was stronger-than-expected in November, the domestic and consumer-oriented sector remains vulnerable to a sudden loss of confidence if the risks worsen. Underlying the strong headline manufacturing PMIS, the much more subdued output indexes suggestion production is still impaired by serious supply shortages."

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said: "The increase in the Eurozone PMI in November still leaves it consistent with slower Eurozone GDP growth in the fourth quarter.

"We doubt November's survey has captured the recent deterioration in the virus situation fully. With cases rising sharply in many of the major Eurozone economies, and restrictions returning in some, manufacturing still constrained by supply issues and the energy crunch rumbling on, it seems more likely that not that the PMI will soften in December and perhaps even heading into 2022."

Among individual countries where data were available, growth accelerated in both France and in Germany, the bloc's largest economy. France saw the stronger expansion for the second month in a row, after a sharp rise in services activity offset a second successive monthly drop in factory output.

However, IHS Markit said that "especially weak" factory output growth was seen in Germany, in large part due to supply constraints.

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