Eurozone businesses bounce back in July

Eurozone business activity grew in July for the first time since the coronavirus pandemic hit, as more parts of the economy that were locked down to curtail its spread reopened and people emerged from their homes to work and spend money, news wires reported. As the rate of infections has eased across much of Europe, governments have loosened some restrictions.

That unleashed the demand and pushed IHS Markit’s flash Composite Purchasing Managers’ Index (PMI), seen as a good indicator of the bloc’s economic health, to 54.8 in July from June’s final reading of 48.5, its highest since mid-2018 and well ahead of the 51.1 forecast in a Reuters poll. “The sharp rise is an encouraging sign that the economic recovery continued at a decent pace. But we suspect that activity will remain below pre-crisis levels for at least the next couple of years,” Jack Allen-Reynolds at Capital Economics said cited by Reuters.

The headline index had been below the 50 mark which separates growth from contraction since March so a return to positive territory will be welcomed by policymakers and governments who have pumped trillions of euros into the economy.

EU leaders agreed a 750 billion euro pandemic recovery fund on Tuesday and with ECB monetary policy expected to stay ultra-loose for a long time, optimism about the year ahead improved. Markets are still expecting a V-shaped recovery but while Friday’s data indicated a bounceback of sorts, it is unlikely to support those views.

French business activity rebounded far more than expected as a post-lockdown recovery in the service sector shifted up a gear, PMI data showed. Manufacturing activity in Germany stabilised, avoiding a contraction for the first time in 19 months, giving hope for a recovery from a long recession exacerbated by the pandemic.

As demand increased, Eurozone firms cut their headcount at a shallower rate and purchasing managers were at their most optimistic since February, just before Europe began to feel the full brunt of the pandemic. The new business index rose to its highest reading since October 2018, suggesting the recovery would extend into August, but there are fears with jobs still being shed and coronavirus containment measures still in place the upswing could be derailed. 

Still, a survey of the bloc’s dominant service industry, which was hardest hit by the government-imposed lockdowns, climbed above the breakeven mark to its highest since mid-2018. But some of the resurgence in demand was driven by firms cutting prices for a fifth month, albeit at a shallower rate than in June.

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