The eurozone’s economic recovery from its deepest downturn on record has stuttered this month, particularly in services, as the pent-up demand unleashed last month by an easing of COVID-19 lockdowns dwindled, a survey showed yesterday.
To contain the spread of the virus, governments imposed strict lockdowns — forcing businesses to close and citizens to stay home, bringing economic activity to a near halt.
After many of those restrictions were relaxed, activity in the eurozone last month expanded at the fastest pace since the middle of 2018, but as infection rates have risen again in parts of the region, some earlier curbs have been reinstated.
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IHS Markit’s flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, sank to 51.6 from last month’s final reading of 54.9.
While still above the 50-mark separating growth from contraction, it was below all forecasts in a Reuters poll that had predicted no change from last month.
“The eurozone’s rebound lost momentum in August, highlighting the inherent demand weakness caused by the COVID-19 pandemic,” IHS Markit economics director Andrew Harker said. “The recovery was undermined by signs of rising virus cases in various parts of the euro area.”
An index measuring new business dropped to 51.4 from 52.7 and once again some of this month’s activity was derived by businesses completing backlogs of work.
Growth in the bloc’s dominant service sector stalled — its PMI plummeted to 50.1 from 54.7, below all forecasts in the Reuters poll that predicted a small dip to 54.5.
With demand waning, services firms cut headcount for a sixth month and more sharply than last month, with the employment index falling to 47.7 from 47.9.
Factory activity — which did not experience quite as sharp a decline as the service industry during the height of the pandemic — expanded for a second month.
The manufacturing PMI dipped to 51.7 from 51.8, confounding the Reuters poll forecast for a rise to 52.9.
An index measuring output, which feeds into the composite PMI, rose to 55.7 from 55.3.
Factory purchasing managers bought fewer raw materials, indicating that they do not expect a big pickup in activity.
The quantity of purchases index only rose to 49.6 from 48.3.
A full bounce back from the eurozone’s deepest recession on record would take two years or more, a Reuters poll of economists published on Thursday showed.
“The eurozone stands at a crossroads, with growth either set to pick back up in the coming months or continue to falter following the initial post-lockdown rebound,” Harker said.
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