Euro zone business slump eased in June as lockdowns relaxed

By Reuters On Jul 3, 2020

FILE PHOTO: Passengers queue at the baggage drop-off as the Paris' Orly Airport reopens following the coronavirus disease (COVID-19) outbreak in France, June 26, 2020. REUTERS/Charles Platiau/File Photo

By Jonathan Cable

LONDON (Reuters) – The plunge in euro zone business activity caused by lockdowns imposed to stop the spread of the coronavirus eased sharply last month as more businesses reopened and people ventured out, a survey showed on Friday.

Around 11 million people have been infected by the virus globally, but as the number of daily reported cases has fallen across much of Europe governments have loosened restrictions on people’s movement.

To support ravaged economies the European Central Bank expanded its pandemic-related bond purchases to a total of 1.35 trillion euros last month while governments have waded in with unprecedented levels of fiscal stimulus.

That may be paying dividends as IHS Markit’s final Composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, bounced to 48.5 in June from May’s 31.9, better than a 47.5 preliminary reading and close to the 50-mark separating growth from contraction.

“The sharp increases in the euro zone PMIs in June suggest that activity is bouncing back quite quickly, but remains far lower than before the crisis,” said Jack Allen-Reynolds at Capital Economics.

A June Reuters poll predicted the economy contracted an unprecedented 12.5% last quarter but would grow 7.9% this quarter.

World shares inched towards a four-month high on Friday and industrial bellwether metal copper was set for its longest weekly winning streak in nearly three years, as recovering global data kept nagging coronavirus nerves at bay.

DAMP DEMAND

Activity in the bloc’s dominant service industry also almost returned to growth last month. Its PMI soared to 48.3 from 30.5, comfortably ahead of the 47.3 flash reading.

However, demand still fell despite vendors cutting prices, and firms reduced headcount for a fourth straight month. The services employment index rose to 43.9 from 37.9, still one of the lowest readings in the survey’s 22-year history.

Unemployment in the bloc edged up in May, official data showed on Thursday.

“The employment index has not rebounded anywhere near as sharply as the output PMI, implying that the increase in activity in recent months is a long way from strong enough to provoke an increase in hiring,” Allen-Reynolds said.

“Instead, the PMI still points to steep declines in employment.”

That weak demand is holding up a more pronounced recovery in Germany’s services sector, which is slowly coming back to life after Europe’s largest economy lifted restrictions, earlier data showed.

French service sector activity returned to growth as its lockdown was further eased, boosting overall business activity, while in Britain — outside the currency union — an historic slump levelled off as some of the economy reopened.

Optimism about the year ahead returned. The euro zone composite future output index climbed back into positive territory, recording 56.9 versus May’s 46.8.