Euro area services slowed a bit more quickly than expected in January, survey shows

Services sector activity in the single currency area slowed further at the start of 2022 due to the drag from rising numbers of Omicron cases, the revised results of a closely-followed survey revealed.

IHS Markit's euro area services sector Purchasing Managers' Index retreated from a reading of 53.1 for December to 51.1 in January (Preliminary: 51.2), its softest reading since March.

Activity in Spanish services was hammered, with the corresponding PMI plummeting from 55.8 to 46.6.

In Italy meanwhile factory and services output combined nearly stalled and while in France so-called composite output recorded its weakest reading since April.

German business activity on the other hand bucked the trend, possibly suggesting that Omicron's impact might be shorter and less severe than previous waves.

Indeed, optimism towards the outlook in manufacturing and services across the euro area was at its strongest since last October, the survey compiler said.

Price pressures in the block however "re-intensified" with rates of input and output cost inflation "accelerating".

Cost burdens quickened only "fractionally" but were faster than anything seen before last November, when they hit a record high.

"Germany is bucking the slowdown trend, however, providing a welcome ray of light to suggest that the impact of Omicron will be both shorter and less severe than prior virus waves. Having been hit to a greater extent by Omicron late last year, service sector activity is already picking up again in Germany and manufacturing output is surging higher.

"A key concern is that inflationary pressures continue to build, with soaring energy prices likely to add further to upward price pressures in coming months. Households are already being squeezed and firms face further cost rises. Tensions in Ukraine also pose a further downside risk to the outlook, with any escalation of the situation likely to further dampen business confidence."