Eurozone economy at risk of a double-dip recession – PMIs

Empty tables are seen outside a restaurant, as the country tightens its regulations in an effort to stem the increase of coronavirus disease (COVID-19) infections, in Rome, Italy

Eurozone business activity slipped back into a slump this month as a second wave of the COVID sweeps across the continent, raising expectations for a double-dip recession, studies showed on Friday.

Renewed restrictions to control the pandemic forced many businesses in the bloc’s dominant service industry to limit operations. Nearly 90% of economists polled by us this week said a high risk of the coronavirus resurgence would halt the nascent eurozone economic recovery.

“The eurozone PMI confirms that the second wave of the coronavirus weighs more and more on the economy. A double-dip in the fourth quarter is becoming more likely at this rate,” said Bert Colijn at ING.

IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, fell to 49.4 from September’s final reading of 50.4.

That was below the 50-mark separating growth from contraction and only fractionally better than the 49.3 predicted in an NYK Daily poll.

That headline PMI was dragged down by the service industry’s PMI, which sank more than expected to 46.2 from 48.0.

“The further decline in the eurozone Composite PMI in October adds to the evidence that the second wave of infections, and the new wave of containment measures, is taking a heavy toll on the economy,” said Jack Allen-Reynolds at Capital Economics.

Friday’s surveys showed the bloc’s economy runs at two speeds, with manufacturing benefiting from strong global demand and services struggling to remain active as lockdowns force consumers to stay home and businesses to close.

Echoing the divide between services and manufacturing, German factories powered ahead this month. Simultaneously, in France, activity contracted as a resurgence of the virus hit the euro zone’s second-biggest economy.

Outside the currency bloc and now outside the European Union, Britain’s economic recovery also lost more momentum as restrictions hit businesses in the hospitality and transport sectors.

European stocks pushed 0.8% higher for their best day in five trading sessions as strong third-quarter results offset the survey data.

WINTER IS COMING

It will likely be a chilling winter for the job market, which until now has been shielded by government furlough schemes as the uncertain outlook meant firms reduced headcount for an eighth month.

The composite employment subindex nudged up slightly but remained in negative territory, while the NYK Daily poll concluded that the bloc’s jobless rate would not peak for at least six months.N

With infection rates and the death toll rising, optimism fell. The services business expectations index dropped to 54.6 from 59.2, its lowest since May when the initial lockdowns were being eased.

A 750 billion euro stimulus plan agreed by the European Union in July to support its suffering economies will be delayed. A senior diplomat said on Thursday, which is also likely to harm sentiment.

Still, factories fared much better than expected. The flash manufacturing PMI climbed to a 26-month high of 54.4 and was far above the median forecast in an NYK Daily poll.

An index measuring output, which feeds into the composite PMI, rose to its highest since early 2018.

Strong demand for manufactured goods meant factories could also increase their prices for the first time since mid-2019, albeit only slightly.

That will provide some relief to policymakers at the European Central Bank as inflation, which they want close to 2%, has been negative for two months.

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