“The eurozone economy likely contracted in the final three months of last year, according to surveys of purchasing managers, as rising coronavirus cases and government restrictions weighed on activity in the dominant services sector,” WSJ writes.
Why It Matters: It’s a troubling sign for those intent on seeing economic recovery in the area sooner rather than later. As long as infection rates remain high, there appears to be little chance of doing so in early 2021, and that opens up “a risk that the currency area will fall back into recession.”
Meanwhile, in areas where new infections are “relatively contained,” economic recovery is progressing. Surveys of Chinese and Australian service provides recorded notable expansion of activity to close out 2020.
- U.S. numbers arrive later today and are expected to point to “steady and strong growth.”
- The U.K., which remains outside the Eurozone, recently engaged in another lockdown because of its sharply rising infections.
- IHS Markit said its Eurozone purchasing managers index rose to 46.4 in December from 41.7 in November. However, a number below 50.0 indicates declining activity.
- While Eurozone’s manufacturing recorded a faster rise in output, services account for more than 70% of overall activity, which caused an overall contraction in December.
Looking Ahead: “The European Central Bank estimates that the eurozone economy shrank by 2.2% in the final quarter of 2020. High levels of new infections, coupled with restrictions on restaurants and other services that involve close physical proximity, mean that a further decline in output is possible in the first quarter of this year.”