Eurozone economic recovery in danger

Euro zone business growth ground to a halt this month, throwing the economic recovery into question, as fresh restrictions to quell a resurgence in coronavirus infections slammed the services industry into reverse, a survey showed on Wednesday. The renewed downturn in the dominant services sector, which is likely to be hit harder by new constraints on activity imposed across the 19-country euro zone, more than offset the strongest manufacturing growth in two years.

IHS Markit’s flash Purchasing Managers’ Index sank to 50.1 in September from August’s 51.9, only just above the 50 mark separating growth from contraction and well below the median forecast in a Reuters poll for a modest dip to 51.7. Tough lockdown measures to halt the spread of the virus brought economic activity to a virtual standstill at the height of the pandemic’s first wave in the spring.

Most measures were relaxed as infection rates fell sharply and recent data have suggested the continent weathered the COVID-induced recession better than many feared. But Wednesday’s gloomy survey of private sector businesses suggested “the recovery is grinding to a halt, at least outside the German manufacturing sector”, said Jessica Hinds at Capital Economics. “And with no sign the resurgence in virus cases has been stamped out, there is a clear and growing risk it goes into reverse, at least in the countries worst affected by the virus.”

The flash PMI for the euro zone service industry plummeted to 47.6 from 50.5, significantly below the breakeven mark and falling short of even the most pessimistic forecast in a Reuters poll that had predicted a reading of 50.5.

Manufacturers fared much better, with the factory PMI climbing to a just over two-year high of 53.7 from 51.7 and a median forecast of 51.9. While services came in below all expectations, manufacturing was above all of them.

The European Central Bank has already planned 1.35 trillion euros of pandemic-related asset purchases to support the economy and there is an historic 750 billion euro recovery fund from the European Union due to kick in next year.

Euro zone economic recovery in danger as services slide, Reuters, Sep 23