Euro Zone Economic Recovery Floundered In September As Services Struggled - PMI

LONDON: The euro zone’s economic recovery faltered in September as the reimposition of some restrictions on activity to halt a resurgence in the coronavirus sent the bloc’s dominant service sector into reverse, a survey showed.

Rising infection rates in the region, something a Reuters poll said last month was the biggest threat to the recovery, will concern policymakers who had hoped the bloc’s economy was healing after contracting an historic 11.8% in the second quarter.

To support the economy, the European Central Bank plans to make 1.35 trillion euros of pandemic-related additional asset purchases and the European Union has announced a 750 billion euro recovery fund due to kick in next year.

But that didn’t stop IHS Markit’s final composite Purchasing Managers’ Index, seen as a good barometer of economic health, falling to 50.4 in September from August’s 51.9, close to the 50 mark separating growth from contraction.

It was dragged down by the PMI for services industries, which accounts for around two thirds of GDP, which slumped to 48.0 from August’s 50.5, albeit slightly better than a preliminary 47.6 estimate.

“With the euro zone economy having almost stalled in September, the chances of a renewed downturn in the fourth quarter have clearly risen,” said Chris Williamson, chief business economist at IHS Markit.

“Much will depend on whether second waves of virus infections can be controlled, and whether social distancing restrictions can therefore be loosened to allow service sector activity to pick up again.”

Suggesting any pick up may take some time, demand for services fell in September and firms cut headcount for a seventh month. The new business index fell to 48.1 from 49.8.

Still, optimism about the coming year improved to levels not seen since before Europe felt the full brunt of the pandemic. The composite future output index rose to 60.5 from 57.8, its highest since February.

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