The eurozone's business growth unexpectedly accelerated this month, but a new wave of coronavirus infections, new restrictions, and price pressures are likely to dampen December's expansion, according to a survey released on Tuesday.
The Flash Composite Purchasing Managers' Index from IHS Markit, a good indicator of overall economic health, increased to 55.8 in November from 54.2 in October.
Most forecasts predicted a drop to 53.2, with anything above 50 indicating growth.
“The flash PMI’s for November surprised to the upside in the eurozone, France and Germany,” said Rory Fennessy at Oxford Economics. “However, with cases rising sharply in some eurozone countries, the near-term outlook is quickly turning more pessimistic as risks of another dangerous wave of coronavirus ramp up. A deterioration in sentiment in December is likely.”
Earlier data showed that growth in Germany's private sector accelerated slightly, but persistent supply bottlenecks in manufacturing continued to weigh on factory output and push inflationary pressures to unprecedented highs.
Initial estimates show that French business activity expanded faster than expected, with the eurozone's second-largest economy's services sector experiencing its fastest growth in nearly four years.
Prices Becoming Pressured
Because of supply constraints caused by the pandemic, it has become a sellers' market for raw materials, with the composite input prices index rising to 75.9 from 73.2, the highest level since the survey began in mid-1998.
Nonetheless, the PMI for the bloc's dominant services sector rose to 56.6 from 54.6, exceeding all forecasts in a Reuters poll, which predicted a fall to 53.5.
However, optimism has faded as renewed lockdowns are expected to have a greater impact on services. The index of business expectations fell to 66.6 from 69.0, its lowest level since February.
Manufacturing activity remained strong, with the factory PMI rising to 58.6 from 58.3. The output index, which feeds into the composite PMI, rose to 53.8 from 53.3.
Demand remained strong, and manufacturers were able to pass on some of the record rises in raw material costs to customers. The output prices index increased to 74.3 from 72.6, the highest level since IHS Markit began collecting data on the index 19 years ago.