Euro economy with record slump – “worse than financial crisis”

US, WASHINGTON (ORDO NEWS) — The corona pandemic is causing the eurozone economy to plunge at an unprecedented rate.

Quarantine measures are particularly difficult for service providers. The purchasing managers’ index for this, by far, the largest economic sector in the currency union fell by 24.2 in March to a record low of 28.4 points, as the IHS Markit Institute announced on Tuesday among its thousands of companies.

The drop in strength comes as a surprise: economists had only expected a drop to 39.0 points. The barometer only shows growth from 50.

“Business activity across the eurozone plummeted in March to an extent unprecedented even at the height of the global financial crisis,” said Markit chief economist Chris Williamson.

“There has been a sharp downturn in France, Germany and the rest of the eurozone as governments take ever harder measures to curb the spread of the coronavirus.” This leaves visible signs of braking. “Many activities have been stopped altogether,” said Commerzbank economist Christoph Weil in view of closed restaurants, canceled trade fairs and empty hotels.

The decline in industry was not as deep as that of service providers. Here the purchasing manager index dropped to 44.8 from 49.2 points. This is the lowest value since July 2012. Economists had expected a stronger decline to 39.0 points. “Many companies are shutting down production to protect their workforce or because of a lack of intermediate products,” said Weil.

Overall, the data indicated a two percent drop in gross domestic product in the currency union in the closing first quarter, Williamson said. “And it is clear that the downturn could worsen,” emphasized the chief economist. The Commerzbank analysts are also not expecting a low point until spring.

“We will probably only see the full extent of the crisis in the second quarter,” said economist Weil. “Here we expect a further minus of up to ten percent.” If the pandemic is managed to be contained by the middle of the year, it should rise sharply again in the second half of the year. “But even in this case, there will be a minus of four percent for 2020 as a whole,” said Weil.

The German barometer also slumped in March, confirming the results of a survey of 9,000 managers by the Ifo Institute published last week. The purchasing managers’ index for service providers fell to 34.5 points in March, the lowest level since the start of data collection in June 1997.

“The unprecedented decline shows that Germany is facing a recession – even a strong one,” said Markit economist Phil Smith. The federal government plans to use another 750 billion euro aid package to cushion the worst economic crisis in a decade.

Most of the other euro countries have also put together extensive rescue packages.

The European Central Bank ensures liquidity at the banks and in the bond markets. “But the only thing that can bring a sustainable recovery to the stock markets are signs of relaxation in the case of new infections,” said Union Investment chief economist Jörg Zeuner. “This determines the further course of economic activity after Easter.”


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