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Sep 23, 2020

News | Business | European Economy: Eurozone recovery stalls after virus 'wake-up call'

 

Tom Rees 


The eurozone’s recovery suffered a major setback in September after more pressure was piled on face-to-face consumer services by a second wave of Covid cases.

Economists warned the region was at risk of a double dip recession after the services industry slipped back into reverse gear in the purchasing managers’ index (PMI) as new restrictions are imposed.

The spike in infections across the eurozone pushed the composite output PMI to within a whisker of contraction territory at 50.1, down from 51.9 the previous month. Any reading above 50 indicates growth.

The survey found that consumer-facing services - such as restaurants, bars and hairdressers - had been particularly hard hit by rising virus worries as reopenings reverse and more cautious consumers dampen activity.

Even Germany, which has seen a smaller second wave, saw its services sector contract this month, but the stagnant readings were still well above the record lows seen at the height of lockdown earlier this year.

Bert Colijn, ING economist, said the renewed weakness was a “wake-up call” for policymakers and showed that virus fears would be an important factor in the recovery.

The services PMI tumbled from 50.5 to 47.6, the lowest since May, but the rebound in factories continued to gather pace to the highest level in almost three years. 

Businesses also became more optimistic on the outlook with the pace of job losses easing and expectations for the next 12 months climbing to a post-pandemic high. 

Chris Williamson, economist at IHS Markit, said rising business hopes rest on virus cases slipping back again.

“The main concern at present is therefore whether the weakness of the September data will intensify into the fourth quarter, and result in a slide back into recession,” he said.

Governments are beginning to roll back reopenings across Europe, with Spain and France hardest hit by a second wave of cases as winter approaches.

Parts of Spain, including Madrid, have been put back into a partial lockdown in recent weeks, piling the pressure on the worst-affected economy in the first half of 2020.

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