Covid second wave sees Eurozone business activity shrink once more

The second “Corona” wave impedes the recovery of the euro area

The second “Corona” wave impedes the recovery of the euro area

The Eurozone PMI composite production index, which looks at activity in the manufacturing and services sectors, fell to its lowest level in four months in October to 49.4, from 50.4 in September.

"The eurozone is at increased risk of falling into a double dip in activity ... as a second wave of virus infections leads to a renewed decline in business activity", said Chris Williamson, chief economist at IHS Markit. An index reading above 50 indicates expansion, while below 50 it signals contraction. "But intensifying Covid-19 restrictions has increasingly affected the services sector".

The indicator is based on data from the firm's PMI surveys for manufacturing and services sectors.

The flash composite output index - a weighted average of the manufacturing and services prints - fell to 52.9, its worst performance in four months.

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Duncan Brock, group director at the Chartered Institute of Procurement and Supply, which conducts the survey with IHS Markit, said that "fears over inherent weaknesses in the United Kingdom economy materialised this month with a sudden fall in the overall index showing a sharp drop in new orders and a continuing erosion of employment opportunities".

As for the manufacturing sector, IHS Markit PMI stood at 53.3 in October, fractionally up from September's 53.2 level.

Growth in the sector slowed despite new export orders increasing at the fastest pace since February 2018, thanks to rising demand from China and the United States and a temporary boost from Brexit stock building among clients in Europe.

"Where a rise in output was reported, survey respondents pointed to factors such as pent-up demand in the manufacturing sector, rising residential property transactions and the restart of work on projects that had been delayed at the start of the pandemic".

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The headline figure fell due to the services sector PMI, which fell to 46.2 points from 48.0, below expectations for a more moderate decline to 47.0 points. But the difference arguably reflects an earlier resurgence of infections in France and Spain than in the UK. Greater optimism regarding the outlook for output over the coming year stemmed from expectations of sustained client demand, political uncertainty easing after the election and hopes of an end to Covid-19 related restrictions at some point over the coming year.

It was the first contraction since June.

Samuel Tombs, chief United Kingdom economist at consultancy Pantheon Macroeconomics said that "the recovery has lost its legs" with a "high risk of a relapse over the winter".

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