Euro-Area Services Slump Eased Before New German Lockdown

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Euro-area services came close to stabilizing in the first half of December -- a trend likely to be short-lived after most German stores were ordered to close for the rest of the year.

An IHS Markit survey of Purchasing Managers suggests a slump triggered by partial lockdowns to rein in the coronavirus was starting to level off ahead of the Christmas holidays. Paired with a pickup in manufacturing, that helped to lift a composite gauge of activity to 49.8, just short of the threshold dividing expansion from contraction.

Euro-Area Services Slump Eased Before New German Lockdown

But Germany, the region’s largest economy, is now shut down until at least Jan. 10 -- non-essential shops are locked up as of Wednesday and the government has urged businesses to start their breaks early. That means the situation could deteriorate again before the vaccine roll out can set off a meaningful recovery.

Companies in the survey indicated they’re increasingly optimistic about the year ahead. New orders rose marginally -- and for the first time since September -- and job cutting was reined in.

“While vaccines mean there’s light at the end of the tunnel, the near-term still looks very challenging for many consumer-facing companies,” said Chris Williamson, an economist at IHS Markit.

The PMIs point to a renewed contraction in overall activity in the fourth quarter, and policy makers at the European Central Bank have warned that risks to the outlook continue to be tilted to the downside.

©2020 Bloomberg L.P.

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