Pedestrians walk through the streets of Venice, Italy, on June 1, 2020.ALESSANDRO GRASSANI/The New York Times News Service
The historic euro zone economic downturn eased again this month as swaths of businesses reopened after closings to stem the spread of the novel coronavirus, but a V-shaped recovery may be unlikely, a set of closely watched surveys showed on Tuesday.
More than nine million people globally have been infected by the coronavirus and around 500,000 have died. Although new cases are still being reported, governments across Europe are gradually easing tough restrictions on citizens and businesses.
Surveys measuring the rate of change compared with the previous month showed activity was still contracting across much of Europe, however, with France a standout as lockdown loosening there led to a modest return to growth.
IHS Markit’s euro zone Flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, recovered to 47.5 from May’s 31.9, moving closer to the 50 mark separating growth from contraction. It hit a record-low 13.6 in April.
A Reuters poll had predicted a more modest rise to 42.4.
“As much as more than a month of [full] lockdowns had sent economies into a standstill, the gradual reopenings of the last two months have led to a sharp rebound in activity. However, it is anything but certain that the euro zone economy can maintain this momentum,” Carsten Brzeski at ING said.
“Higher unemployment, companies going out of business, as well as plans to further cut back on staff and falling orders, suggest that the current V-shaped recovery could quickly run out of steam.”
The bloc’s economy is forecast to contract an unprecedented 12.5 per cent this quarter but grow 7.9 per cent in July-September, a Reuters poll predicted earlier this month.
National data showed a private-sector recession in Germany eased further this month, but coronavirus-related disruptions and uncertainty continued to weigh on demand, suggesting Europe’s largest economy is set for a slow recovery.
And while June’s German reading was better than expected, concerns about the labour market and continuing job cuts clouded the outlook.
In France, the bloc’s second largest economy, business activity rebounded more than expected and returned to growth after three months of an unprecedented downturn.
A sharp improvement from May saw the French PMI jump to 51.3, far exceeding the median expectation in a Reuters poll for a reading of 46.3.
Britain’s private sector, outside the currency union, shrank less than predicted this month as more businesses restarted work after a lockdown, putting the economy on course to return to growth from July.
“Over all, today’s data provide some reassurance that the economy is getting back on its feet. But with some restrictions still in place and fears of a second wave lingering, it will be some time before activity returns to previrus levels,” Jessica Hinds at Capital Economics said.
ROAD TO RECOVERY
Optimism about the coming year has returned, however; the euro zone PMI’s future output index, which had been below 50 for three months, recovered to 55.7 from 46.8, its second-largest rise since comparable data were first available in 2012.
Consumer morale also improved this month, data from the European Commission showed on Monday.
The PMI for the bloc’s dominant service industry bounced to 47.3 from 30.5 in May, denoting a much shallower contraction and beating the 41 forecast.
Factory activity in the region, which was contracting long before the coronavirus, declined again, although at a much slower pace. The manufacturing PMI jumped to 46.9 from 39.4, ahead of the 44.5 median forecast.
But manufacturing head count was reduced again. The employment subindex held stubbornly below 50 at 41.3, although it was up from May’s 37.6.
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