Euro Area: Second wave of infections weighs on the economy at the start of Q4

Euro Area PMI October 2020

Euro Area: Second wave of infections weighs on the economy at the start of Q4

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, declined to 49.4 in October from 50.4 in September, marking the softest reading in four months. Therefore, the PMI moved below the 50-threshold that distinguishes contracting from expanding activity in the private sector.

Although manufacturing production picked up further steam, with growth hitting a 32-month high, the services sector saw activity contract at a steeper pace in October due to rising coronavirus cases and renewed lockdowns. Similarly, new orders grew robustly in the manufacturing sector, while they fell sharply in the services sector. Meanwhile, firms cut jobs for the eighth consecutive month, albeit at the softest pace since March. On the price front, input cost inflation accelerated, translating into the softest decrease in selling prices in eight months.

Assessing the Eurozone’s two largest economies, Germany continued to recover in October, supported by a robust surge in manufacturing output, while France saw business activity deteriorate at a steeper pace.

Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:

“While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of COVID-19 containment measures, which not only tightened across the region in October but look set to be stepped up further in November.”

Meanwhile, Bert Colijn, Eurozone senior economist at ING, stated:

“From here on, the path for the economy is highly uncertain. With cases continuing to rise at a worrying pace, more restrictive measures in the eurozone definitely cannot be ruled out. Today’s PMI confirms that after a stellar third quarter GDP figure, we could be in for the dreaded double dip.”

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