The latest surge of COVID-19 infections is pushing the Eurozone into a second recession, squashing hopes for a near-term rebound of the global economy.
IHS Markit said its Purchasing Managers Index for the region, which measures manufacturing and service sector activity, slid to 47.5 in January from 49.1 in December, with a reading below 50 considered a decline in activity.
Activity for the region’s two largest economies, Germany and the U.K., mirrored that of the Eurozone, with the U.K. faring the worst.
In light of the ongoing pandemic and worsening economic status in Europe, the European Council on Thursday (Jan. 21) agreed to continue to keep borders open to facilitate the flow of goods and services, but cautioned on non-essential travel.
“The Council may need to review its recommendations on intra-EU travel and non-essential travels into the EU in light of the risks posed by the new virus variants,” reads a press statement.
The travel restrictions are continuing to hit airlines hard — Lufthansa is losing $1.2 million every two hours, CEO Carsten Spohr told CNBC.
The Eurozone GDP fell in the first two quarters of 2020 and began to drop again in the fourth quarter. Economists fear that first quarter 2021 activity will also be down.
“A double-dip recession for the eurozone economy is looking increasingly inevitable,” Chris Williamson, IHS Markit’s chief business economist, said in the release.
The European Central Bank (ECB) appeared to echo those concerns on Thursday.
ECB President Christine Lagarde said that it is likely economic output fell in late 2020 and that “a decline in the fourth quarter will travel into the first quarter,” according to Bloomberg.
The ECB’s governing council said that Eurozone interest rates will stay at a record low during the pandemic. The interest rate on main refinancing operations will remain at 0.00 percent, while interest rates on the marginal lending facility will stay at 0.25 percent and the deposit facility at negative 0.50 percent.
European regulators are also worried that the economy could be hit by a wave of small business defaults, which could result in huge losses for some European banks.
Despite the second dip, IHS Markit said Eurozone businesses surveyed expressed optimism for the second half of 2021 as more of the population is vaccinated against COVID-19.
On Jan. 19, the European Commission said in a report that it is working on a plan to speed up vaccinations.
The EC said it is aiming to get 80 percent of healthcare workers and those over 80 years old vaccinated by March 1, and 70 percent of the remaining adult population vaccinated by the summer. The EC also plans to introduce vaccination certificates, which should allow people to travel more freely.
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