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Euro zone services hit in February but factories racing along – PMIs

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Euro zone services hit in February but factories racing along - PMIs 1

By Jonathan Cable

LONDON (Reuters) – Business activity across the euro zone contracted again in February as lockdown measures to contain the coronavirus hammered the bloc’s dominant service industry, a survey showed, even as factories had their busiest month in three years.

With daily reported infections still high governments have been encouraging citizens to stay home and closed much of the continent’s hospitality industry while factories have largely remained open.

IHS Markit’s flash composite PMI, seen as a good guide to economic health, nudged closer to the 50 mark separating growth from contraction, registering 48.1 in February compared to January’s 47.8. A Reuters poll had predicted 48.0.

However, some of that activity was from completing old orders. The backlogs of work index fell to 47.9 from 49.0.

“Ongoing COVID-19 lockdown measures dealt a further blow to the euro zone’s service sector in February, adding to the likelihood of GDP falling again in the first quarter,” said Chris Williamson, chief business economist at IHS Markit.

The euro zone economy is in a double-dip recession, according to last week’s Reuters poll of economists, who said the risks to their already weak outlook was skewed more to the downside.

A PMI covering the services industry fell to 44.7 from January’s 45.4, well below the median expectation in a Reuters poll for 45.9.

But with vaccination programmes accelerating, driving hopes for a return to some form of normality, optimism about the year ahead improved sharply. The services business expectations index climbed to its highest since April 2018.

“Assuming vaccine roll-outs can boost service sector growth alongside a sustained strong manufacturing sector, the second half of the year should see a robust recovery take hold,” Williamson said.

Strong demand for manufactured goods helped the factory PMI soar to 57.7 from 54.8, the highest since February 2018 and well above all forecasts in a Reuters poll that predicted 54.3. An index measuring output, which feeds into the composite PMI, jumped to 57.5 from 54.6.

The new orders index also soared and factories hired additional staff for the first time in nearly two years. The employment index rose to 50.9 from 49.4.

(Reporting by Jonathan Cable; Editing by Hugh Lawson)

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