Eurozone PMI held well in January despite the Omicron variant and higher costs Eurozone PMI held well in January despite the Omicron variant and higher costs Eurozone PMI held well in January despite the Omicron variant and higher costs

Eurozone PMI held well in January despite the Omicron variant and higher costs

Investment Theme
Christopher Dembik

Head of Macroeconomic Research

Summary:  The results of the monthly survey of purchasing power show the eurozone economy is resilient despite the spread of the new Omicron variant and higher costs. Expect GDP growth to be slightly weaker this quarter. But there is a bright side: manufacturing problems continue to ease and the German economy has rebounded in January after a weak end of 2021. The inflation headache remains but we doubt the European Central Bank (ECB) will act anytime soon to counter inflationary pressures. Over the past few days, several Governing Council members (Klaas Knot, Gabriel Makhlouf for instance) have clearly stated this is too premature to withdraw stimulus and hike interest rates.

Supported by an adequate fiscal policy, accommodative monetary policy and eased financial conditions, the eurozone economic recovery continues in early 2022 but at a slower pace than in 2021. Eurozone manufacturing is going from strength to strength. It improved further from 53.8 in December to 55.8 in January. Manufacturers mentioned two positive factors: less shortages for critical inputs and easing of transportation delays. From an inflation perspective this is positive because it reduces the upward pressure on producer price growth, though it does not disappear. Other factors are contributing to push inflation higher, such as energy costs and wages in some countries. There are pending issues too, for instance backlogs of work. It will certainly take months for businesses to realign production with demand, especially if demand remains strong. As the services sector was hit by restrictions implemented to contain the Omicron variant and the services PMI reached a 11-month low, the composite output PMI declined to 52.4 in January from 53.3 in the previous month and slightly below market expectations of 52.6. This is the second consecutive month of slowing growth. We consider growth still remains well-oriented in the eurozone. But there is a change of momentum. GDP growth is likely to be lower than expected this quarter. Some countries will surprise on the upside (Germany for instance) while others will disappoint (France).

Key details from the flash PMI report:

  • Price pressures remain a major issue with input cost and output charge inflation holding close to record highs. Markit notes that « rising costs remain a concern for businesses, with the survey data showing that input prices are continuing to rise sharply and on multiple fronts ». Expect higher prices to be passed on to consumers and subcontractors whenever possible. This might have a negative impact on consumption. It could ultimately force the European Central Bank to adopt a more hawkish stance too.

  • The Omicron variant is leaving a mark on the services sector, especially in countries where tougher restrictions have been introduced (i.e. the Netherlands, curfew in Catalonia etc.). But there is growing evidence that businesses and consumers alike are learning to cope with Covid and associated restrictions. Hopefully, we are getting close to the point where the virus will become endemic and will have a much less impact on the economy. On January 23, the WHO Europe Director, Hans Kluge acknowledged « it is plausible the region is moving towards a kind of pandemic endgame » as the new variant could infect 60% of Europeans by March (which is close to the level of herd immunity).

  • Whereas the French composite PMI softened to a 9-month low of 52.7 as the services sector saw a marked slowdown due to weaker demand and staff shortages, the situation in Germany improved unexpectedly with a strong rise in the manufacturing sector from 57.4 in December to 60.5 in January. Supply bottlenecks showed further signs of easing, which resulted in a higher than expected manufacturing PMI. This seems to indicate the German economy has rebounded in January after a weak end of 2021.

  • The UK flash composite PMI slipped to 53.4 in January from 53.6 in December. This is much lower than expected (55.0). Consumer-facing businesses were hit by the spread of the variant. But the main issue is related to higher cost, like in the rest of Europe. The gauges of costs paid and prices charged by services companies – watched closely by the Bank of England (BoE) – increased in January again after easing back in December from recent all-time highs. We forecast the BoE will hike interest rates at least three times this year, in February, May and August in order to contain inflationary pressures. Each hike is likely to be 25 basis points. 


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992