Eurozone Nov PMI rise could be short-lived as Omicron threatens – IHS Markit

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Eurozone business activity picked up the pace in November but the acceleration could be short lived as the Omicron coronavirus variant and intensifying cost pressures knocked sentiment, according to a survey released on Friday.
The IHS Markit eurozone composite output Index rose to 55.4 from 54.2 in October, but down from a “flash” estimate of 55.8.

Services business activity index jumped to 55.9 from 54.6 month on month and lower than the flash estimate of 56.6.

“An improvement in the rate of economic growth signalled by the eurozone PMI looks likely to be short-lived. Not only did demand growth weaken, but firms’ expectations of future growth also sank lower as worries about the pandemic intensified again,” said HIS Markit chief economist Chris Williamson.

“With the data collected prior to news of the Omicron variant, sentiment about near-term prospects will inevitably have been knocked even further.”

Meanwhile, there was a further intensification of price pressures across the eurozone in November, with rates of output charge and input cost inflation both accelerating to fresh highs.

However, the strongest rates of growth were seen away from the two largest euro area economies monitored by the survey, with Germany in particular recording a weak rate of growth in November.

“Growth is looking especially subdued in Germany and France, where supply shortages have had a notably stronger knock-on effect from manufacturing through to services. More resilient expansions are being recorded in Spain and Italy, though even here recent gains are at risk if social distancing restrictions need to be stepped up,” Williamson said.

Prices increases continued their “relentless” rise, with rates of inflation in both firms’ costs and average selling prices for goods and services hitting new highs in November.

There were also warnings inflation could rise if virus case numbers continue to rise and new restrictions are introduced, Williamson said.

“Supply chains will be further hit, staff availability will deteriorate and spending could shift from services to goods again, further exacerbating the imbalance of supply and demand.”

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