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Europe’s Virus Lockdowns Push Economy Into Another Contraction

The euro area is slipping into another contraction amid new virus restrictions.

Europe’s Virus Lockdowns Push Economy Into Another Contraction
Rush hour morning commuters pass through ticket barriers at Gare du Nord railway station in Paris. (Photographer: Benjamin Girette/Bloomberg)

The euro area is slipping into another contraction amid new virus restrictions that are taking a massive toll on parts of the economy.

IHS Markit’s composite Purchasing Managers’ Index fell to 45.1 in November from 50 in October, hinting at declining output, according to data published Monday.

The drop was led by services, reflecting the closure of bars and restaurants and the loss of business in the hospitality sector. Manufacturing continued to grow, although at a slower pace.

Europe’s Virus Lockdowns Push Economy Into Another Contraction

The widespread imposition of curbs across the 19-nation bloc means the economy is set to shrink for a third quarter this year. The situation could worsen, and even push the region into a double-dip recession, if governments are forced to extend or expand the clampdown on businesses and movement.

Governments have kept up financial aid to help companies and workers, and the European Central Bank has said it’s ready to do more. Policy makers have highlighted a boost to asset purchases and a new round of long-term loans as their prime tools to add stimulus next month.

The latest lockdowns aren’t as severe as those implemented during the first wave of the pandemic, which means the contraction this quarter is expected to be limited to 1.7%. That compares with a drop of almost 12% in the three months through June.

However, employment fell for a ninth straight month in November, according to the PMI, with services the worst hit.

The index for Germany showed it’s coping with the latest restrictions relatively well. Employment there rose, and the economy may only stagnate this quarter. France is forecast to shrink 3.5%.

©2020 Bloomberg L.P.