Europe’s Fledgling Recovery Is at Risk as Pandemic Worsens

The euro-area economy showed signs of improvement at the end of last year, progress that now risks being derailed by longer pandemic lockdowns and discontent over the pace of vaccinations against the coronavirus.

A gauge of private-sector activity rose in December, with continued strength in manufacturing largely countering a slide in services, according to the final reading of an IHS Markit survey of purchasing managers. French consumer confidence jumped by the most in 3 1/2 years.

Europe’s Fledgling Recovery Is at Risk as Pandemic Worsens

Those surveys were compiled through to the middle of the month though, and the outlook has since become bleaker. Germany and the U.K. have reinstated harsher restrictions amid a resurgence of the coronavirus, and French plans to reopen restaurants and bars on Jan. 20 look increasingly unlikely.

“Worse may be yet to come before things get better,” said Chris Williamson, an IHS Markit economist. “Service sector activity in particular looks likely to remain constrained by severe social distancing in the early months of the new year. The risk of a technical recession, with GDP also falling in the first quarter, has therefore risen.”

While governments are rushing to roll out vaccines to contain the virus, those efforts have been widely criticized in large economies such as Germany and France as too slow.

With the pandemic crippling activity, inflationary pressures are also low. Provisional figures for France showed consumer prices were unchanged on the year in December.

Germany’s inflation rate remained at -0.7%. That’s the fifth consecutive reading below zero and the lowest in more than a decade, partly reflecting temporary tax cuts to stimulate spending during the pandemic.

©2021 Bloomberg L.P.

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