Pandemic puts brakes on eurozone business activity

Cornelia Mascio
Ottobre 25, 2020

Euro zone economic activity fell back into decline this month as the coronavirus pandemic hammered the services sector and offset improvements in manufacturing.

The UK's manufacturing purchasing managers' index fell to 53.3 in October, according to flash figures, a three-month low and down from 54.1 in September. An index reading above 50 indicates expansion, while below 50 it signals contraction.

Overall business activity in the USA quickened its expansion pace in October, rising at the fastest rate for 20 months and business optimism improving markedly, preliminary data from IHS Markit showed Friday.

"The U.S. economy looks to have started the fourth quarter on a strong footing", said Chris Williamson, chief business economist at IHS Markit. "But intensifying Covid-19 restrictions has increasingly affected the services sector". "This reflected a much weaker contribution from the service economy, with survey respondents often commenting on tighter restrictions across the hospitality sector and the impact of local lockdowns on general consumer spending", Markit explained.

Optimism slipped to levels last seen in May, noted CIPS Group Director Duncan Brock. The flash manufacturing PMI climbed to a 26-month high of 54.4 and was far above the median forecast in a Reuters poll.

Growth in the sector slowed despite new export orders increasing at the fastest pace since February 2018, thanks to rising demand from China and the U.S. and a temporary boost from Brexit stock building among clients in Europe.

France's composite output index came in at 47.3 in October, a five-month low, in comparison with 48.5 in September.

The estimates were based on data collected between October 12 and October 21 and they are usually published about one week before the final results.

That headline PMI was dragged down by the service industry's PMI, which sank more than expected to 46.2 from 48.0. But the difference arguably reflects an earlier resurgence of infections in France and Spain than in the UK. Economists believe that more monetary stimulus is on the way before the end of the year.

In the first half of the year, the United Kingdom economy contracted more than that of any other G7 country following longer-lasting curbs and a more severe health emergency. As a result, the Bank of England's Monetary Policy Committee "will be under enormous pressure to do more", he added.

Samuel Tombs, chief United Kingdom economist at consultancy Pantheon Macroeconomics said that "the recovery has lost its legs" with a "high risk of a relapse over the winter". "We expect it to announce at either its November or December meetings that it will purchase a further £50bn of gilts".

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