Euro-Zone: “unprecedented collapse” of private sector activity in April

Zone euro: «effondrement sans précédent» de l'activité du secteur privé en avril

BRUSSELS | private-sector activity in the euro area slumped in April to a pace “unprecedented”, as a result of measures taken to combat the spread of coronavirus, according to the first estimate Thursday of the composite PMI index released by Markit.

The monthly index appears to 13.5 percentage points, compared to 29,7 points in march, which is “by far the biggest contraction in global activity recorded in more than twenty years of inquiry”.

When the PMI is above 50 points, this means that the activity is progressing. It decreases if it is lower than this threshold.

“In comparison, the index had declined to 36.2 in February 2009, at the height of the global financial crisis,” says the firm in its press release.

For Chris Williamson, economist at Markit, the data “foreshadow a contraction in the quarterly of the economy of the euro area of the order of 7.5 %” because “the restrictive measures imposed by the governments” should “continue to paralyse large swathes of the economy”.

These measures have already had severe consequences in the services sector, as evidenced by the activity index, which folds down to 26.4 in march to 11.7 in April.

In the manufacturing sector, companies have also been reported in April, a decline unprecedented in their activities, the index falling from 38.5 in march to 18.4.

“The confidence indices for the month of April, are terribly bad, and suggest that economic activity is practically paralyzed,” stresses Jack Allen-Reynolds, an analyst at Capital Economics, who anticipates that “production will remain very low for many months”.

To Bert Colijn, economist at ING, “the question is, how the activity will resume in the coming weeks”.

“Nobody expects a rapid rebound in activity, but some recovery after the lows of April would be logical, because some businesses are allowed to reopen safely,” he explains.

This analyst is concerned, however, to see the survey to emphasize “that the layoffs are occurring at a record pace in April”.

This indicates “that the programs of partial unemployment may not absorb all the shock” and “that unemployment is likely to increase significantly in the near term,” according to him.

The PMI (for Purchasing Manager’s Index) takes into account new orders, production, employment, deliveries and inventories in the manufacturing sector.

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