Eurozone growth stalls as Covid-19 hits services - PMI
By Sean Farrell
Date: Wednesday 23 Sep 2020
(Sharecast News) - Eurozone business activity stalled in September as manufacturing growth was offset by weaker demand for services caused by rising Covid-19 infections and social distancing measures.
The preliminary IHS Markit purchasing managers' index for the currency area fell to a three-month low of 50.1 with 50 marking the difference between growth and contraction. Economists' average forecast was for a 51.9 reading unchanged from August.
Manufacturing activity rose to a 31-month high of 56.8, led by Germany, as factories bounced back from lockdown closures. Services activity shrank to produce a score of 47.6 - a four-month low and down from 50.5 in August. France, the eurozone's second-biggest economy after Germany, suffered an overall contraction as a decline in services more than offset a small rise in manufacturing.
Chris Wiliamson, IHS Markit's chief business economist, said: "A two-speed economy is evident, with factories reporting that production growth was buoyed by rising demand, notably from export markets and the reopening of retail in many countries, but the larger service sector has sunk back into decline as faceto-face consumer businesses in particular have been hit by intensifying virus concerns."
Prices charged for goods fell at the steepest pace since June as companies resorted to discounts to stimulate sales. Costs rose as manufacturing input prices eased and virus protection measures sent costs higher for service companies. The combination of low prices and high expenses caused the biggest squeeze on margins since December 2018.
"Based on our rule of thumb that the recovery is intact as long as the PMIs remain above 50, today's data are just about holding on to a positive outlook, but the alarm is now sounding," Claus Vistesen, eurozone specialist at Pantheon Macroeconomics, said.
"Services are now clearly suffering from the sustained return of the virus, and associated reimposition of restrictions, while manufacturing is holding up ... The return of the virus has put the recovery on hold, mainly due to weakness in services."
Despite short-term pressures, expectations for the next 12 months increased to a seven-month high and were better for manufacturing, services and the euro area as a whole. This optimism stemmed mainly from a belief that Covid-19 disruption would ease over the coming year.
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