Eurozone economy has ‘likely bottomed out’: PMI survey

BRUSSELS (AFP) - The eurozone’s economic slump has “likely bottomed out” after the bloc suffered a disastrous collapse under lockdowns to contain coronavirus, a closely watched survey by IHS Markit said this week.

The contraction across the 19 EU nations using the euro continued in May for the third straight month.

But “the rate of decline eased as parts of the economy started to emerge from lockdowns,” the firm’s purchasing managers’ index (PMI) revealed.

The index for May came in at 30.5 points - well above the catastrophic, record-busting 13.5 recorded in April, but still below the 50-point threshold between contraction and expansion.

“The eurozone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April,” IHS Markit’s chief business economist Chris Williamson said.
Eurozone GDP in the second quarter “is still likely to fall at an unprecedented rate, down by around 10 percent compared to the first quarter, but the rise in the PMI adds to expectations that the downturn should continue to moderate as lockdown restrictions are further lifted heading into the summer,” he said.

Another economy-watching firm, Capital Economics, agreed that the data pointed to the eurozone’s economy having “probably reached the bottom in April, providing some hope that the economy is now slowly on the road to recovery”.

It cautioned that the euro area would likely be “remaining very depressed even as lockdown measures are being gradually lifted”.

The PMI survey, which has business managers comparing their manufacturing and services output to the previous month, showed the coronavirus pandemic was responsible for closing non-essential businesses, disrupting supply chains and diminishing demand.

“Furlough schemes were often cited as having reduced the near-term need to reduce staffing numbers, but longer-term job retention depends on the speed at which order books will refill,” IHS Markit said.

“Social distancing and other virus-related lockdown measures continued to hit businesses such as hotels, restaurants, travel and tourism and other consumer-facing firms especially hard, resulting in the third-steepest decline ever recorded,” it said.

Pessimism among the surveyed managers remained high for the coming 12 months, it noted.

The so-called “flash” PMI contained specific figures only from the eurozone’s two biggest national economies, Germany and France, and more general data from the rest of the eurozone.

Germany showed a milder downturn, at 34.1 points, than in France, on 32 points, “while the rest of the eurozone saw the steepest decline”.

Capital Economics said France’s worse showing was “unsurprising” since it eased its restrictions later than Germany and more slowly.

The economic analysis unit of the Dutch bank ING said the PMI showing lingering malaise in the eurozone “buries any final hopes of a V-shaped recovery” in which activity would have sharply bounced back.

“It confirms that a quick recovery of output is not what we’re seeing,” it said, adding that “the majority of businesses are still experiencing contraction or no change from a very low base” and “the pace of job cuts remains the most concerning”.