Will the tidal wave once again plague the European economy? While most member states have been implementing restrictive measures for weeks, the latest PMI indicators, widely observed in economic and financial circles, indicate that activity in the euro zone accelerated in the euro zone during the month. November. This composite index unveiled this Friday, December 3, which takes into account services and industry, stands at 55.4 in November against 55.2 in October.. Activity expands when the 50 threshold is crossed and recession when activity is below 50. “This strengthening of growth also marks the end of a three-month slowdown, during which the stock index lost six points.” explains the Markit institute in a statement.
This improvement could however be short-lived. Indeed, the restrictions implemented across Europe could stall the recovery before the end of the year. “The acceleration in growth in the euro zone highlighted by the PMI data for November may prove to be short-lived. In fact, the rise in demand has weakened, and concerns about the development of the pandemic has reduced business confidence “ said Markit chief economist Chris Williamson. In addition, the survey was carried out between November 10 and 25. Even if the Omicron variant could be present on the Old Continent, the health authorities avoided sounding the alarm bells during this period. The first cases detected and identified in South Africa clearly changed the game in just a few days.
“The conditions for the recovery to at first glance all together, but it goes without saying that growth rates will moderate “ ODDO Security Chief Economist Bruno Cavalier said in a recent note.
Services resisted
Surveys conducted by Markit among purchasing managers show a boost in activity in services. The PMI index reached 55.9 from 54.6 in October. Most of the major European economies recorded an acceleration in their activity in the tertiary sector, particularly in Spain and Italy. In Ireland, the indicator peaks at 59.3 points, a 7-month high. In Germany, growth was relatively subdued, remaining close to the low in October. Given the weight of services in the European economy, gross domestic product (GDP) growth should continue to accelerate in the coming months, but at a slower pace due to the restrictions.
Industry still struggling
The engines of the European productive apparatus are still suffering. Almost two years after the arrival of the virus on the continent, the repeated waves have severely disrupted the supply chains of European industries very dependent on Asian suppliers. In Germany and France, large industrial groups and their suppliers continue to struggle after long months of border closures. The European industry, which was already in decline before the pandemic could come out greatly weakened by this extended pandemic even if the announcements of relocations multiply. “The current difficult health situation risks slowing the French economy once again. The new international travel restrictions are not good news for French aircraft production and, with the expected slowdown in global growth, production growth. industry could slow down in the coming months “ commented ING economist Charlotte de Montpellier in charge of monitoring France in a note.
Inflationary pressures until when?
This is the question that torments economists and central banks today. Soaring energy and commodity prices continue to weigh on business production costs and consumers’ purses. A few weeks before the end of the year holidays, energy consumption should accelerate and bills should rise. In the end, the purchasing power of Europeans could be reduced despite the measures implemented by the States to try to cushion this increase.
Especially since part of the increase concerns constrained expenditure (energy bills, gasoline, etc.) which is difficult to arbitrate for households dependent on the car or on fossil fuels. It is still difficult at this stage to assess the duration of inflationary pressures. The extension of the pandemic is constantly pushing back the return to an economy without health threat. The challenge for the ECB would be to initiate a premature tightening of its monetary policy (“tapering“) at the risk of breaking the engines of growth which are still suffocating.
