Euro-Area Economy Speeds Toward Recession as 2021 Starts

A pedestrian wearing a face mask as a precautionary measure against COVID-19, walks past a closed-down shop in the City of London on January 15, 2021. Photographer: Tolga Akmen/AFP/Getty Images
A pedestrian wearing a face mask as a precautionary measure against COVID-19, walks past a closed-down shop in the City of London on January 15, 2021. Photographer: Tolga Akmen/AFP/Getty Images

(Bloomberg) -- The euro zone’s slide toward a double-dip recession accelerated in January as extended pandemic lockdowns shut businesses.

IHS Markit’s gauge of private-sector activity fell to 47.5 -- a measure below 50 signals contraction -- and services shrank at the second-fastest rate since May.

Manufacturers, who have been hit less than service providers by coronavirus restrictions, remained largely upbeat about the next 12 months, though they are also grappling with challenges. Supplier delivery times rose the most since the data started being collected in 1997, with the exception of last April when factories closed worldwide, and input costs rose at the fastest pace in two years.

“A double-dip recession for the euro-zone economy is looking increasingly inevitable,” said Chris Williamson, chief business economist at IHS Markit. “Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.”

Germany posted growth, bolstered by its manufacturing sector, but at the weakest pace since July when a recovery from the first wave of lockdowns was under way. France and the rest of the euro zone as a whole saw a broad decline in output.

Employment across the currency bloc fell for an 11th month. Business expectations for the next 12 months fell back, after peaking in December, led by services.

European Central Bank President Christine Lagarde acknowledged the likelihood of another downturn on Thursday and said monetary and fiscal support must continue. She spoke after policy makers kept their current settings unchanged at their first meeting of the year.