Business activity has crashed to a record low in the eurozone according to a closely watched survey, as the coronavirus pandemic fuels a global economic crisis.
The IHS Markit flash composite purchasing managers’ index for the eurozone plunged to 31.4 in March from 51.6 in the previous month — the lowest reading since the series began in the late 1990s, suggesting the bloc is heading for a deep recession as the drastic measures introduced to contain the spread of the pandemic in Europe start to bite. A reading below 50 indicates the majority of businesses reported a deterioration compared with the previous month.
“Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis,” said Chris Williamson, chief business economist at IHS Markit.
“Steep downturns were seen in France, Germany and across the rest of the euro area as governments took increasingly tough measures to contain the spread of the coronavirus,” he said.
The PMIs are the first widely watched measure of the economic impact of the coronavirus crisis since the outbreak in the region escalated in late February. The preliminary data were based on responses collected between March 12 and 23, before the most severe elements of national lockdowns had been implemented, which means the data for April are likely to be even worse.
IHS Markit said the survey data were “indicative of an 8 per cent annualised decline in eurozone GDP and it is unlikely that the index has hit rock bottom yet”.
It added that the most severe downturns in activity were recorded in consumer-facing sectors, notably hotels, restaurants and other leisure-based activities, while there were record falls in the transport and travel sector.
Investors, however, shrugged off the news and European stock markets built on strong early gains after the PMI was released, while German 10-year Bund prices inched up.
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Eurozone finance ministers are due to discuss options to address the economic crisis later on Tuesday.
“Today’s release will fuel even more pressure for a co-ordinated fiscal response on the eurozone level . . . following the announcement of ramped-up monetary policy action by the ECB,” said Tomas Dvorak, eurozone economist at Oxford Economics.
The PMI index for the eurozone’s services sector dropped from 52.6 in February to 28.4 in March, the lowest level ever recorded, pointing to a near shutdown of the domestic economy. The manufacturing sector contracted at a marginally slower pace: the index fell to 44.8, the lowest since the 2008 financial crisis. Economists said the slowdown was being mitigated by suppliers’ lengthening delivery times — which usually signals rising demand, but in this case points to supply chain disruption.
In Germany, the composite PMI fell to an 11-year low of 37.2 in March, its biggest fall on record. The composite PMI for France fell to a record low of 30.2, also its biggest ever drop. UK business activity also contracted at a record rate: the PMI for services plunged to 35.7, a record low.
France’s finance minister Bruno Le Maire said on Tuesday that its economic impact was “comparable only to the great recession of 1929”. He declined to predict how much the French economy would shrink as a result of the crisis, but said industry was only operating at 25 per cent of its normal level.
“The corona crisis is putting the functionality of the market economy to the test in many places,” Peter Altmaier, German economy minister, said in an interview with Handelsblatt newspaper on Tuesday. “Whole markets are completely breaking down.”
A survey of 5,000 consumers in the UK, Germany, France, Italy and Spain published on Tuesday by Morgan Stanley found that a third feared that they, or a household member, could lose their jobs this year and 45 per cent said they expected to be worse off in six months’ time.
Additional reporting by Victor Mallet in Paris
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