Business cycle Threats to the economy are growing: A key economic indicator predicts the eurozone will sink into a new recession

The Purchasing Managers’ Index weakened sharply in January, anticipating a contraction in the economy.

Eurozone the economic downturn intensified in January, according to preliminary data from the Purchasing Managers ’Index released on Friday. The index was 47.5 points in January. In December, it was 49.1 points.

The Purchasing Managers’ Index is one of the most important barometers in the economic cycle, which, based on historical evidence, has reliably predicted economic development.

If the index is above 50 points, it predicts GDP growth. If, on the other hand, less than 50 points, it heralds a contraction in GDP. Gross domestic product means the total value of goods and services produced for final use.

Index economist at the producing research company IHS Markit Chris Williamson estimates that the euro area would appear increasingly likely to sink into a new recession.

“Production contracted at an accelerating pace due to deteriorating conditions in the service sector and weaker industrial growth,” Williamson says in a statement.

The index is based on a survey of 5,000 euro area companies. As a result, the economic cycle weakened broadly in various euro area countries.

The main reason the deterioration of the economic cycle is the restrictions imposed by states to curb coronavirus infections.

Governor of the European Central Bank Christine Lagarde warned on Thursday that a worsening coronavirus pandemic is also a risk to the eurozone economy.

“Production is likely to contract in the fourth quarter of 2020, and the intensification of the pandemic poses some downside risks to the short-term economic outlook,” CEO Lagarde said.

The sinking of the euro area into a new recession would inevitably affect the Finnish economy as well, as 40 per cent of the value of goods exports goes to other euro countries.

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