Euro zone business activity shrinks but Covid vaccine hopes boost optimism

Eurozone business activity contracted sharply this month as renewed lockdowns forced many firms in the bloc’s dominant service industry to close temporarily, although news of possible vaccines boosted hopes for 2021, surveys showed on Monday.

The bloc's economy is on track for its first double-dip recession in nearly a decade as a second wave of the coronavirus sweeps across Europe, a Reuters poll suggested last week. But on Monday, Britain's AstraZeneca said its vaccine could be around 90 per cent effective without any serious side effects.

Pfizer and Moderna have also developed apparently effective vaccines and Monday’s Purchasing Managers’ Index (PMI) showed optimism about the year ahead improving to its highest since before the pandemic hit the continent.

Still, IHS Markit’s headline flash composite PMI, seen as a good guide to economic health, fell to 45.1 in November from October's 50.0 — the level separating growth from contraction. A Reuters poll had predicted a shallower dip to 46.1.

“The drop in the composite PMI to well below 50 adds to the evidence that the Eurozone economy will post another sizeable contraction in Q4,” said Jack Allen-Reynolds at Capital Economics. But with vaccines looking increasingly likely to be rolled out in the first half of next year, the surveys show greater optimism about 2021."

Vaccine hopes, and expectations of more stimulus from the European Central Bank next month, meant optimism improved. The composite future output index jumped to 60.1 from 56.5, its highest since February.

Shares and oil prices rose on Monday while the dollar softened.