Eurozone economy has ‘likely bottomed out’: PMI survey

The Eurozone’s economy has “likely bottomed out” after suffering a disastrous collapse under lockdowns to contain the new coronavirus, a closely watched survey by IHS Markit said today. Contraction across the 19 EU nations using the euro continued in May for the third straight month, but “the rate of decline eased as parts of the economy started to emerge from lockdowns,” it said in the purchasing managers’ index (PMI).

The index for May came in at 30.5 points, well above the catastrophic 13.5 recorded in April - but still well below the 50-point threshold between contraction and expansion. But while that was much better than the median expectation of 25.0 in a Reuters poll, it was still a long way from the 50 mark separating growth from contraction.

"The euro zone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April," said Chris Williamson, chief business economist at IHS Markit. "Second-quarter GDP is still likely to fall at an unprecedented rate, down by around 10% compared to the first quarter, but the rise in the PMI adds to expectations that the downturn should continue to moderate as lockdown restrictions are further lifted heading into the summer." A Reuters poll last week forecast an 11.3% contraction this quarter.

The ongoing slump comes despite the European Central Bank pledging to buy more than 1 trillion euros in assets this year and governments outlining hundreds of billions in spending plans to support businesses and households.

There was an improvement in the battered services sector, which has borne the brunt of lockdown measures. The flash PMI for the bloc's dominant service industry rose to 28.7 from 12.0, exceeding expectations in a Reuters poll for 25.0.

Meanwhile, a manufacturing PMI rose to 39.5 from 33.4, beating expectations for 38.0. An index measuring output almost doubled to 35.4 from 18.1. Services firms cut prices for a third month, possibly giving the ECB room to offer more support. The output prices index remained sub-50 at 43.0 compared to last month's 40.2. With lockdowns easing, and infection rates in the region falling, factory purchasing managers were less pessimistic. The manufacturing future output index climbed to 45.0 from 36.6.

More on this subject: Coronavirus

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