Eurozone industry expands in October, job losses continue

LONDON (ICIS)–The eurozone’s manufacturing growth accelerated in October but unemployment kept rising, while the services sector went into a “steeping contraction” as new pandemic restrictions take a toll, analysts at IHS Markit said on Friday.

Infection rates are exploding in many European countries, with lockdown measures re-introduced in many nations; Germany the only bright spot, said Markit Economics, which compiles the PMI indices (see table).

While the rate of job losses across the 19-country currency union eased in October, forward-looking indicators indicate the recession may still get worse before it gets better: inflows of new business declined, and business optimism fell to its lowest since May.

GDP contractions across the area in the fourth quarter are a likely outcome, said the analysts.

PMI indices (below 50 = contraction)	October	September
Composite (services + manufacturing)	49.4	50.4
Services	46.2	48.0
Manufacturing output (1)	57.8	57.1
Manufacturing (2)	54.4	53.7

In the UK, where measures have also been introduced to contain the second wave, all PMI Indices  stayed over the 50 points but Markit said there had been a “sharp slowdown” in the country’s private sector growth, with orders for new work declining for the first time since June.

EMPLOYMENT DOWN
Despite booming activity in the eurozone’s manufacturing industries as global trade recovers, industrial employment was nonetheless cut further, a trend also observed in services, making October the eight month of job losses across the 19-country eurozone.

“The pace of job cuts remained higher than at any time since June 2013 prior to the pandemic. Job losses were seen across manufacturing and services, with the former recording the steeper rate of decline,” said Markit.

Although employment was also cut in Germany, its labour market is showing signs of stabilising, said the analysts; job losses were attributed by companies to excess capacity, linked to the reduction in work backlogs.

The upturn in activity in manufacturing, however, could be short lived if the second wave of the pandemic keep expanding around the world, said analysts at Oxford Economics.

While global trade is on the rise, more lockdown-type measures in the eurozone and around the world would ultimately affect eurozone manufacturing, which has overseas trade as a key outlet.

“While the short-term outlook for manufacturing remains much more positive than that of services there is a clear risk that renewed restrictions in major economies could cause trade to slump again, impacting industrial activity,” said Oxford Economics’ analyst Nicola Nobile.

FROM BAD TO WORSE
The eurozone was already set to suffer a large fall in GDP in 2020 due to the second-quarter lockdowns; three of its largest economies – France, Italy, and Spain – were expected to suffer contractions between 10-15%; Germany’s economy was expected to contract 5-7%.

October’s worrying figures, which could get worse in November before and if countries manage to stabilise the infection curve, could cause even larger falls in GDP.

“While Germany is buoyed by its manufacturing sector booming to a degree exceeded only twice in almost 25 years of survey history, the rest of the region has sunk into a deepening downturn,” said Markit’s chief economic Chis Williamson.

“While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB [European Central Bank] to add more stimulus and for national governments to help cushion the impact of COVID-19 containment measures.”

Oxford Economics said it was keeping unchanged its GDP forecast for the eurozone in 2020 but added that the October figures are likely to cause a change for its fourth-quarter GDP forecast.

NOTES:
1. The Manufacturing Output Index is based on the survey question “Is the level of production/output at your company higher, the same or lower than one month ago?”

2. Manufacturing PMI is a composite index based on a weighted combination of new orders (0.3); output (0.25); employment (0.2); suppliers’ delivery times (0.15); stocks of materials purchased (0.1).

Front page picture: An empty bar in Milan, where restrictions were reimposed this week
Source: Luca Bruno/AP/Shutterstock