Omicron dampens hopes for euro zone's economic rebound

Euro zone economic sentiment has dropped more than expected last month while inflation hit another record high.

This indicates that the region's economy is under renewed stress as surging coronavirus infections force governments to tighten restrictions.

Foreshadowing the pain, the European Commission's Economic Sentiment Indicator, a key gauge of the bloc's economic health, fell more sharply than forecast in December to a level last seen in May. 

With infections breaking records almost daily as the Omicron variant sweeps across Europe, growth is likely to take a hit around the turn of the year even though governments have largely avoided the debilitating measures that brought their economies to a standstill a year ago.

The outlook for services worsened significantly and employment expectations also fell.

READ MORE: OECD: Omicron threatens global economic recovery

Germany's slowdown evident

In Germany, the euro zone's biggest economy, supply chain bottlenecks have held back the vast factory sector for most of the last quarter and industry, thought to be on the rebound, unexpectedly stumbled in November.

Output fell 0.2 percent on the month, despite expectations for a 1 percent rise, reinforcing views that Europe's biggest economy came to a halt in the fourth quarter of 2021, with no relief in sight for months.

In a rare bright spot for the bloc, retail trade unexpectedly rose in November, indicating that at least consumers remained optimistic going into the Christmas shopping season.

The problem is that heavy spending by households, who were forced to save up cash for the past year amid restrictions, is pushing consumer prices to new records.

READ MORE: OECD: ‘A global economic recovery is in sight’

READ MORE: No recovery in global jobs market forecast until 2023 due to Covid