Fresh lockdowns plunge eurozone business activity to 6-month low

Eurozone business activity has hit a six-month low as fresh restrictions to limit the spread of coronavirus weigh on the services sector, fuelling the likelihood of a double-dip economic downturn, according to a widely watched survey.

Services activity across the single-currency bloc plunged into decline in November according to the IHS Markit flash purchasing managers’ index for the sector, which hit 41.3, down from 46.9 in the previous month and the lowest level since this spring’s lockdowns.

This was lower than forecast by economists polled by Reuters, who had expected a reading of 42.5. A reading of below the 50 mark indicates that the majority of businesses reported a monthly contraction in activity. 

As a result the flash composite purchasing managers’ index, an average of services and manufacturing, fell to a six-month low of 45.1, slightly below economists’ consensus expectations and down from 50 in the previous month. It is the first time the index has entered contraction territory since June. 

“The eurozone economy has plunged back into a severe decline in November amid renewed efforts to quash the rising tide of Covid-19 infections,” said Chris Williamson, chief business economist at IHS Markit. “The data add to the likelihood that the euro area will see gross domestic product contract again in the fourth quarter.”

However, the composite PMI remained much stronger than the 13.6 low reached in the spring, reflecting this month’s more targeted restrictions that have left most schools, building sites and factories open.

Eurozone manufacturing held up more strongly than it did in the spring, recording a reading of 53.6, down from 54.8 in the previous month but remaining in expansion territory. And eurozone business expectations improved sharply, as economists become increasingly optimistic that breakthroughs on developing coronavirus vaccines will lead to a swift recovery next year.

“The decline in activity is nowhere near as severe as in the spring, when the purchasing managers’ index for [the services] sector plunged by 40 points within two months,” said Christoph Weil, economist at Commerzbank. “This indicates that the restrictions have so far only been felt in the directly affected sectors such as tourism, gastronomy and event management.”

Some parts of the bloc are performing better than others. Companies in France’s dominant services sector reported their sharpest decline in activity since May, hit by stricter coronavirus restrictions — including closing non-essential stores. France’s composite PMI fell for the fourth consecutive month to 39.9, its lowest level since May.

But a rebound in exports supported growth in Germany’s large manufacturing sector; its composite PMI score dipped to 52, indicating a continued expansion of business activity.

Mr Williamson said that eurozone industry “remains something of a bright spot, with factories in Germany continuing to show especially encouraging resilience, led by a further surge in demand”.

Manufacturers were particularly upbeat, with confidence hitting its strongest reading since March 2018, though service providers also grew more optimistic.

IHS Markit said employment rose in Germany for the first time since February and France had the lowest number of job losses since the pandemic started, although unemployment in the rest of the eurozone rose at the fastest pace since June.

Flash PMIs are published about 10 days before the final figures and typically include about 85 per cent of the final responses.

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