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Shrinking services drag eurozone into downturn

By Sean Farrell

Date: Thursday 03 Dec 2020

Shrinking services drag eurozone into downturn

(Sharecast News) - A sharp drop in services activity amid new Covid-19 restrictions dragged the eurozone economy to shrink for the first time in five months in November.
The IHS Markit composite purchasing managers' index of private sector output dropped to 45.3 from 50 a month earlier, broadly in line with a preliminary estimate of 45.1. 50 marks the difference between contraction and expansion.

The overall decline was driven by a fall to 41.7 for the eurozone's services industry, down from 46.9 in October. The drop was the biggest since May. The initial "flash" estimate was 41.3.

The weakest of the eurozone's major economies was France with a reading of 40.6. Like Spain at 41.7 and Italy at 42.7 France's result was a six-month low. Germany was the only country in the survey to expand with a reading of 51.7, helped by its large manufacturing base, but activity was the lowest in five months.

IHS Markit said the downturn was closely linked to stricter restrictions imposed in various countries to stem a resurgence in Covid-19 infections. Hospitality and tourism were hit particularly hard and employment fell for the ninth straight month with Italy and Spain worst affected.

The downturn was limited compared with during the first wave of coronavirus lockdowns because factories stayed open and manufacturing output continued to expand. Confidence about the future improved on the news that vaccines to stop Covid-19 had been tested successfully. Optimism remained well below the survey's long-term trend.

Chris Williamson, IHS Markit's chief business economist, said: "The eurozone economy slipped back into a downturn in November as governments stepped up the fight against Covid-19. However, this is a decline of far smaller magnitude than seen in the spring. Manufacturing has so far continued to expand, buoyed in part by recovering export demand, and the service sector is also seeing a much shallower downturn."

Williamson said services' relative resilience partly reflected spill-over demand for transport and other industrial support from manufacturers but also looser lockdown measures than earlier in the pandemic.

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