Eurozone Business Activity Falls as Virus Restrictions Halt Recovery

A survey on Friday showed that Eurozone economic activities slipped back into decline this month with renewed restrictions to control the coronavirus pandemic, forcing many companies in the region’s dominant service sector to limit operations.

A second wave of the virus swept across Europe, and 90% of economists polled by Reuters said there was a high or very high risk that this would disrupt the emerging economic recovery in the euro area.

A preliminary reading of the IHS Purchasing Managers’ Index, which is a good measure of the resilience of the economy, indicates that this is already happening.

The index fell to 49.4 from a final reading in September of 50.4, below the 50 level separating growth and contraction and just slightly more than the 49.3 forecast by a Reuters poll.

The headline figure fell due to the services sector PMI, which fell to 46.2 from 48.0, below expectations for a more moderate decline to 47.0.

“The eurozone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity in October,” said Chris Williamson, chief business economist at IHS Markit.

The employment sub-index rose to 48.1 from 47.7. But the Reuters poll concluded that the bloc’s unemployment rate will not reach its peak for at least six months.

As cases and deaths rose, optimism waned. An index of expectations of service activity decreased to 54.6 from 59.2, its lowest level since May, when initial lockdown measures were eased.

But the factories did much better. The preliminary PMI reading for the manufacturing sector rose to a 26-month high of 54.4 from 53.7, beating the average forecast in a Reuters poll of 53.1.

An index measuring production, which feeds the composite PMI, rose to 57.8 from 57.1, its highest level since early 2018.