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Euro supported as eurozone services and retail sales inch higher

By Neil Dennis

11:50, 3 December 2021

Business growth
Supply managers report growing capacity constraints - Photo: Shutterstock

Business activity in the eurozone's services sectors grew in November as demand increased for a seventh-consecutive month, but capacity issues continued to constrain output.

Purchasing managers surveyed across the region by IHS Markit, showed that while the eurozone's service sector economy expanded in November, growth was disjointed by nation and sector as Germany recorded among the weakest performances, while Ireland and Spain expanded at the greatest rates.

The final purchasing managers' index (PMI) for November services read 56.9, up from 54.6 in October, but down from the preliminary November estimate of 55.9 recorded two weeks ago. A PMI reading above 50 indicated expanding business activity.

Capacity constraints

As has been the case for several months, survey respondents reported rising capacity pressures due to supply bottlenecks, while inflationary pressures continued to build as input costs rose at the fastest pace in the survey's history, while output charges also rose at record levels.

Chris Williamson, chief business economist at IHS Markit, noted however, that investors were likely looking ahead to the December surveys as new restrictions were introduced in some eurozone countries in the past couple of weeks.

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Covid impact due

Notably, Germany announced this week that unvaccinated citizens would be denied entry into bars, restaurants and other public indoor spaces, and that it was pushing Germans to take up their booster jabs. Austria has already introduced even stricter measures as it attempts to quell the rising fourth wave of COVID infections.

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Williamson said: “While growth risks have shifted to the downside, risks to the inflation outlook seem tilted to the upside if virus case numbers continue to rise and new restrictions are introduced.”

He explained further: “Supply chains will be further hit, staff availability will deteriorate and spending could shift from services to goods again, further exacerbating the imbalance of supply and demand.”

Retail sales

Eurozone retail sales increased by a tepid 0.2% in October, data from Eurostat showed on Friday, in line with forecasts, and driven by online sales, offsetting decreases in food and drink.

“This was perhaps a sign that rising COVID cases were deterring consumers from making in-person purchases,” said Michael Tran at Capital Economics, who noted that sales are likely set for further declines in the months ahead as COVID-related restrictions are introduced in some areas of the eurozone.

Nevertheless, the euro was buoyed slightly by Friday's PMI and retail sales data, with the single currency gained 0.1% against the dollar and 0.3% versus the pound.

Read more: Eurozone manufacturing growth dogged by supply-demand imbalance

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