Business activity in the Eurozone dropped significantly during the first two weeks of November as countries implemented serious measures to prevent further spread of coronavirus.
The latest flash IHS Markit Eurozone Composite PMI® fell from 50.0 in October to 45.1 in November, its lowest score in over 5 months. Excluding the declines seen in the first two quarters of 2020, the average PMI reading of 47.6 in Q4 so far is the worst since the last quarter of 2012. This, IHS Markit believe, is an indication of a steep decline in GDP.
The figures from the PMI show that service sector output fell for the 3rd month in a row, while manufacturing output growth in November merely slowed to its lowest level since the start of recovery back in July of this year.
Germany continues to buck the trend
Germany, in contrast to other Eurozone members, continued to grow ever so slightly despite its flash composite PMI dropping from 55.0 to 52.0. Manufacturing output growth slowed, but is still among the highest recorded in the history of the survey. On the other hand, service sector activity dropped for the 2nd month is succession, contracting at the fastest rate in over 5 months.
Steep drop in business activity in France
The flash composite PMI for France fell from 47.5 to 39.9, a 3rd fall in as many months. May was the last time the country’s business activity had dropped so much. The service sector declined for the 3rd month in succession too, while factory output fell for the first time in over 5 months.
More job losses in the service sector
Unemployment in the Eurozone increased for the 9th month in a row. Jobs were lost in all sectors of the economy, with the services sector bearing most of the brunt.
Prices of goods up, cost of services down
Weakened demand saw the price of services drop in November as companies sought to tempt buyers with discounts and promotions. On the flip side, the price of goods rose by the highest degree since May 2019 due to higher input costs.
Vaccine news boost optimism
Business expectations for the next 12 months were at their second highest level since February, largely thanks to news of a vaccine potentially being distributed in the new year.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“The eurozone economy has plunged back into a severe decline in November amid renewed efforts to quash the rising tide of COVID-19 infections. The data add to the likelihood that the euro area will see GDP contract again in the fourth quarter.
The service sector has once again been the hardest hit, especially consumer-facing and hospitality businesses, though weakened demand has also taken a toll on manufacturing.
The factory sector nevertheless remains something of a bright spot, with factories in Germany continuing to show especially encouraging resilience, led by a further surge in demand.
Firms across both manufacturing and services have also become more optimistic about the year ahead, largely reflecting growing hopes that the recent encouraging news on vaccines will allow life to return to normal in the new year.
Importantly, however, the further downturn of the economy signalled for the fourth quarter represents a major set-back to the region’s health and extends the recovery period. After a 7.4% contraction of GDP in 2020, we are expecting only a 3.7% expansion in 2021.”
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