Europe renewed lockdowns, vaccinations hiccups could depress sentiment

Jonathan Lopez

06-Jan-2021

LONDON (ICIS)–Renewed lockdown measures in several European countries by the year-end, and potential hiccups in vaccinations roll-outs are depressing sentiment as the outlook remains uncertain.

The final PMI indices for all economic sectors for December, while showing an increase in activity from November, came in lower than analysts were expecting.

While manufacturing has so far been resilient in the face of restrictions to mobility, the services sectors that make up most of the European economy are already feeling the pinch from the renewed measures.

The new coronavirus variant detected in the UK mid-December, which transmits much faster, has prompted several countries to be vigilant, fearful that health services could be overwhelmed if the strain expands in their territories.

Meanwhile, the World Bank said this week that hiccups in vaccinations roll-outs could also dent confidence and hit growth; also calling for countries to implement green and digital  policies as a way out of the crisis.

In Europe, the disparities in rolling out vaccines are stark. France has barely started to vaccinate, while, on the advanced group, the UK has already delivered the first of two shots to more than 1.5m people in high-risk groups.

ACTIVITY SLOWS
At 49.1 points, the Final Eurozone Composite Output Index compiled by IHS Markit and published on Wednesday stood in contraction territory; a reading above 50.0 points would show expansion.

It was lower than the estimated issued in December at 49.8 points, but higher than November’s 45.3.

The index showed a contraction due to the hit to the services sectors; the Final Eurozone Services Business Activity Index came in at 46.4 points, more than one percentage point lower than the flash estimate, but higher than November’s 41.7 points.

Negative growth in Q4 across the 19-member eurozone is already taken as a given. Whether the slowdown will extend into the first quarter remains to be seen.

“Worse may be yet to come before things get better, especially as the latest survey data were collected before the news of the new – more contagious – strain of the virus,” said Markit’s chief economist Chris Williamson.

“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.”

VIRUS THRIVING
In general, Europe’s epidemiological situation has markedly deteriorated over the last month (see bottom map), and health services across the continent are bracing for further spikes as social gatherings over the Christmas period start to show up in infection rates reaching those who potentially need medical care.

The UK entered a strict lockdown on Wednesday aiming to stop the fast spread of the new variant, while Germany extended its lockdown until at least 31 January.

Italy also tightened rules on social gatherings, while the French and Spanish press have for days been reporting on potential partial lockdowns in the most affected regions.

Analysts at Oxford Economics (OE) said on Wednesday they are likely to lower their forecasts for GDP growth in the eurozone in Q1 considering the latest virus news. OE currently estimates that GDP will grow by 1%.

“While we generally share the optimism about vaccines becoming widely available this year, we caution that this will likely have little impact on activity in Q1,” said Oxford Economics.

“The final December PMIs paint a rather muted picture for the single currency [euro] area’s prospects throughout the winter months. While diffusion indices such as the PMI should be interpreted with caution in the current environment, the survey contains some strong evidence that the economy contracted in December.”

RECOVERY: EASY DERAILMENT 
The World Bank this week published a report warning that logistical woes in the vaccine rollouts could take a toll on growth.

The bank expects global GDP to grow by 4%, but the downside risks to the recovery are still great.

“A downside scenario in which infections continue to rise and the rollout of a vaccine is delayed could limit the global expansion to 1.6% in 2021,” said the World Bank.

“Meanwhile, in an upside scenario with successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5%.”

The current crisis is likely to leave long-lasting scars in the economy, and those with less secure and worse paid jobs are likely to take the largest hit, it added.

This is why policy makers should focus, once the health emergency subsides, on policies that enhance growth and soften the long-term negative consequences of the pandemic.

“In emerging market and developing economies, policies to improve health and education services, digital infrastructure, climate resilience, and business and governance practices will help mitigate the economic damage caused by the pandemic, reduce poverty and advance shared prosperity,” said the World Bank.

Europe infection rates; data for last two weeks of December
The WHO considers 50 cases per 100,000 inhabitants to be a safe level; 250 cases per 100,000 or higher is high risk; most European regions are at risk levels.
Click on image to enlarge

Source: European Center for Disease Prevention and Control

Front page picture: A worker on the production line at a weaving workshop Lianyungang, China’s Jiangsu province
Source: Xinhua/Shutterstock

Focus article by Jonathan Lopez

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?