Eurozone economy faces 'deep downturn' as March PMI hits lowest level

Author: Morgan Condon


LONDON (ICIS)--Business activity in the eurozone collapsed in March to the lowest level on record on the back of a sharp fall in the services sectors' output as the region battles the coronavirus pandemic, analysts at IHS Markit said on Tuesday.

The services and manufacturing composite purchasing managers’ index (PMI) fell from 51.6 points in February to 31.4 points in March, according to a flash reading.

A reading above 50.0 points marks economic expansion; a reading below shows contraction.

Manufacturing activity fell in March but not to the extent of the services sector - from 52.6 points in February to 28.4 in March, the lowest readings since the eurozone survey began in 1998.

The industrial sectors, however, also posted notable falls; the Manufacturing PMI measuring new orders, output, or employment, among others, fell from 49.2 points in February to 44.8 points in March.

The Manufacturing Output PMI, measuring companies' views on activity in the current month compared with the previous, fell from 48.7 in February to 39.5 in March.

All readings remained significantly below the 50.0 stable-growth mark, with the composite index surpassing the previous low hit in February 2009 at 36.2  points.

The latest readings for factory output and goods ordered were at their weakest points in April 2009.

Supply chains have also been affected by constraints as poor demand pushed prices to their lowest levels in four years as companies offered discounts to boost sales and reduce inventories.

“Since the manufacturing survey began in mid-1997, only one month (May 2000) saw more widespread supply chain delays than reported in March,” said Markit.

Expectations of future output also deteriorated markedly to reach an all-time low, with record levels of pessimism about the year ahead in both manufacturing and services.

This downturn has led to the largest job cuts in the manufacturing sector since July 2012.

These figures suggest a downturn in GDP at a quarterly rate of 2%, said Markit, and as governments across the single-currency bloc try to enforce citizens to isolate in a bid to prevent further contagion.

Record lows were reflected in flash readings from the UK as well, with the composite PMI falling to 37.1 from 53.0, and services PMI falling from 53.2 to 35.7.

More mild declines were recorded in UK manufacturing with the overall PMI hitting a three-month low at 48.0 from 51.7 and the manufacturing output index falling to a 92-month low at 44.3 from 52.2.

"Shortages of manufacturing components following global factory closures dislocated manufacturing supply chains and led to the greatest lengthening of delivery times since the index began in 1992,” said Duncan Brock, group director at CIPS, which compiles the PMI index jointly with Markit.

"A surge in demand for food and pharmaceutical products led to rising output in some parts of the manufacturing sector, but this was more than offset by a slump in production elsewhere," he added.

Analysts from Oxford Economics said the PMI index on Tuesday suggested economic activity in the eurozone could be entering a "deep downturn" which could potentially prompt the European Central Bank (ECB) to unleash more stimulus.

“The flash reading suggests services have so far been hit harder by the draconian containment measures put in place by governments to control the spread of the virus. Both French and German national data also indicate a deep slump,” said Oxford Economics.

“Today’s release will fuel even more pressure for a coordinated fiscal response on the eurozone level to mitigate the economic fallout of the pandemic, following the announcement of ramped-up monetary policy action by the ECB last Wednesday.”

Front page picture: A shop in Berlin closed, 20 March; the services sector has been hit by Europe-wide quarantines aiming to contain coronavirus
Source: Michael Sohn/AP/Shutterstock

Focus article by Morgan Condon

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