Eurozone economies in free-fall as pandemic bites

The disastrous consequences of the Covid-19 pandemic on economies across Europe have been starkly illustrated by record falls in output across the continent.

David Sapsted

3 April 2020

A series of purchasing managers' indices (PMI) published on Friday showed that, during March, the eurozone recorded its largest ever drop in activity, with a combined reading of the zone’s manufacturing and services sectors showing amonth-on-month fall from 51.6 to 29.7 - even worse than economists had been predicting.The composite PMI in Germany for both services and manufacturing fell from 50.7 in February to 35.0 last month, in an index where any reading below 50 indicates contraction. The nation's services sector plummeted to a record low of 31.6.In Italy, the country worst affected by the outbreak to date, the PMI for services nosedived from 52.1 in February to just 17.4, with the composite reading standing at 20.2. In Spain, the services PMI tumbled from 52.1 to 23.0, while the sector in France also hit a record low.Chris Williamson, chief business economist at IHS Markit, which compiles the readings, said: "The data indicate that the eurozone economy is already contracting at an annualised rate approaching 10 per cent, with worse inevitably to come in the near future."The service sector is currently seeing an especially severe impact from the Covid-19 outbreak, with travel, tourism, restaurants and other leisure activities all hit hard by virus containment measures."No countries are escaping the severe downturn in business activity, but the especially steep decline in of Italy’s service sector PMI to just 17.4 likely gives a taste of things to come for other countries as closures and lockdowns become more prevalent and more strictly enforced in coming months."The UK fared little better with services registering a 34.5 reading for March, down from the previous month's 52.1. "The slump in activity was almost exclusively linked by survey respondents to business shutdowns and cancelled orders in response to the coronavirus pandemic," said IHS Markit.The closure of shops, bars and restaurants, costing thousands of jobs, had helped drive the sector into a downward spiral that, at the moment, showed no signs of ending, experts said. The one area to defy the downward trend was technology, where self-isolation and home working has led to a boom in the sector."The services sector was sucked into a black hole and flung into the unknown by the forceful impact of the Covid-19 coronavirus, affecting every area of supply chains from transport to purchasing levels and job creation," said Duncan Brock at the Chartered Institute of Procurement and Supply."The abrupt drop in new orders was the sharpest since the survey began in 1996 according to the PMI data."It's increasingly difficult to find the words to describe the devastation as every region in the world fights to save human life as the first priority."The likelihood of a global recession is now a given, though its duration and severity has yet to reveal itself. One thing is for certain, with the lowest business optimism for over 20 years, the immediate outlook for the services sector is beyond grim."However, a more optimistic note has been sounded by Nigel Green, the CEO and founder of deVere Group, one of the world’s largest independent financial advisory and services organisationsHe believes the global economy could be heading for a recovery from a coronavirus downturn within six months, as long as governments roll out mass testing and guarantee to support demand.“The economic fallout of Covid-19 is as severe as it is unpredictable," he said. "“No-one knows for sure the full of extent of the impact of the public health emergency on the world economy – but a significant downturn is, unfortunately, almost inevitable.“However, the signs from countries where lockdown restrictions are now being eased suggest that the economic downturn could be relatively short-lived if certain factors come into play sooner rather than later.“Indeed, I believe that the global economy is likely to be headed for recovery from a coronavirus-triggered downturn within six months – but only if mass testing is rolled out now and governments guarantee to support demand.”