Eurozone Private Sector Collapses Amid Coronavirus Lockdown

The euro area private sector suffered its steepest fall in activity over two decades in April due to the measures taken to contain the spread of coronavirus, flash survey data from IHS Markit showed Thursday.

The flash IHS Markit composite output index plummeted to an all-time low of 13.5 in April, down from a prior record low of 29.7 in March. A score below 50 indicates contraction.

The reading was expected to fall moderately to 25.9 in April.

This was the largest monthly collapse in output recorded in over two decades of survey data collection. The COVID-19 pandemic was widely blamed for the deterioration in April as efforts to contain the virus intensified curbing citizens’ movement.

The services Purchasing Managers’ Index plunged to a record low of 11.7 from 26.4 in March. This was well below the forecast of 23.5.

Similarly, the manufacturing PMI came in at a 134-month low of 33.6, down from 44.5 in the previous month. The expected reading was 38.0.

“Our model which compares the PMI with GDP suggests that the April survey is indicative of the eurozone economy contracting at a quarterly rate of approximately 7.5%,” Chris Williamson, chief business economist at IHS Markit said.

By region, the unprecedented scale of the collapse was broad-based, with composite flash PMI output indices hitting all-time lows in Germany and France.

The German private sector shrank in April as both services and manufacturing recorded decreases in output due to the COVID-19 lockdown.

Germany’s headline flash composite output index declined to 17.1 in April from 35.0 in March. This was the lowest reading since comparable data were first compiled more than 22 years ago.

The flash factory PMI fell sharply to a 133-month low of 34.4 from 45.4 in March. The expected reading was 39.0. At the same time, the services PMI reached a record low of 15.9 versus 31.7 a month ago and forecast of 28.1.

The decline in French private sector activity also deepened in April amid ongoing business closures stifling both supply and demand.

The flash composite output index fell to a series low of 11.2 in April from 28.9 in March. This was also below the forecast of 25.3.

The services PMI declined to 10.4 from 27.4 a month ago. The expected score was 25.0. The manufacturing PMI came in at 31.5 in April, down from 43.2 in the previous month and economists’ forecast of 37.5.

As lockdown measures across the Eurozone are gradually lifted with many countries taking first small steps late April and early May, the question is how activity will pick up in the coming weeks, Bert Colijn, an ING economist said.

No one expects a quick bounce-back of activity, but some recovery from April lows would make sense as some businesses are allowed to cautiously reopen, the economist added.

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