Ómicron slows the economic rebound in the eurozone; inflation touches all-time highs

Economic confidence in the euro zone fell more than expected last month, while inflation hit another record, indicating that the economy is under further stress as rising coronavirus infections force governments to tighten restrictions.

At a time when infections are breaking almost daily records as the omicron variant spreads across Europe, growth is likely to suffer by the end of the year, even though governments have largely avoided the debilitating measures that crippled their economies a year ago. anus.

Heralding the pain to come, the European Commission’s Economic Sentiment Indicator, a key measure of the bloc’s economic health, fell more sharply than expected in December, to a level not seen since May. The outlook for services worsened significantly and job expectations also fell.

In Germany, the largest economy in the euro zone, the slowdown is already evident in the hard data. Bottlenecks in the supply chain have held back Germany’s vast manufacturing sector for most of the last quarter and the industry, believed to be on the mend, suffered an unexpected setback in November.

Output fell 0.2% on the month, despite expectations of a 1% rise, reinforcing the view that Europe’s largest economy stalled in the fourth quarter of 2021, with no relief in sight for months.

“Unfortunately, this is where the rebound in German industry stops for now. The fourth wave of the pandemic and omicron should return industrial activity to hibernation”Said Carsten Brzeski, an economist at ING. “We will have to wait until spring for the German industry to return to a fully sustainable recovery path ”.

In a rare upside for the bloc, retail trade surged unexpectedly in November, indicating that at least consumers remain optimistic for the holiday shopping season.

The problem is that heavy spending by households, which were forced to save last year by restrictions, is pushing consumer prices to new records.

Inflation accelerated by an unexpected 5% last month, a record for the 19-nation currency bloc and an awkward reading from the European Central Bank (ECB), which has consistently underestimated price pressures.

In the Commission’s opinion poll, there was a glimmer of good news for the ECB, as eurozone businessmen lowered their price hike expectations for the first time in more than a year last month.