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Euro zone economic recovery in danger as services slide

Reuters | Berlin | Updated: 23-09-2020 15:51 IST | Created: 23-09-2020 15:49 IST
Euro zone economic recovery in danger as services slide
Representative Image Image Credit: Pixabay

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.

"Alarm bells should be going off about the pace of the recovery at the moment as the number of new COVID-19 cases has been flaring up," said Bert Colijn at ING. "For governments and the European Central Bank, this will be a wake-up call, if they needed one."

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." SLOW RETURN

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. But a return to where the economy was before the outbreak is not expected until at least end-2022 and the new rise in coronavirus cases is the biggest threat to the recovering economy, according to a Reuters poll of economists.

Separate flash PMIs showed Germany's private sector continued to recover this month but more slowly than expected. In France, the euro zone's second biggest economy, activity slowed to a four-month low with services weaker than expected as the country struggled to contain a surge in new COVID-19 cases. In Britain, outside the currency union, the recovery from the lockdown lost some momentum as consumer-facing sectors suffered from the end of a government subsidy to support restaurants and more general COVID-related worries.


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