European Services in Lockdown Slump See Hope in Vaccine News

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Europe’s services providers are taking the view that business can only get better from here.

Orders, prices and employment in the sector fell in November, reflecting the dire consequences of partial coronavirus lockdowns, according to a monthly survey. But confidence “improved noticeably,” with sentiment about the future rising in all countries covered.

The pickup is largely related to encouraging news on the development of a vaccine. Mass rollout could bring an end to a situation that’s crippled businesses. Bars, restaurants and non-essential shops have been shuttered for weeks across wide parts of the euro area to contain the pandemic, at a time that would be the busiest of the year.

European Services in Lockdown Slump See Hope in Vaccine News

That dragged the IHS Markit Purchasing Managers’ Index for services down to 41.7 from 46.9 the previous month, signaling the deepest contraction since May. A broader composite measure of activity also declined.

“Encouragingly, growth expectations have lifted higher, as vaccine developments fuel optimism that life can start to return to normal in 2021,” said Chris Williamson, IHS Markit chief business economist. That will help demand, “though a high degree of caution is expected to persist for some time,” he said.

The slump isn’t as severe as during the first wave of the pandemic, largely due to lighter lockdowns. There are also spillovers from manufacturing, which has continued to expand thanks to a strong performance in Germany, the region’s largest economy. That’s benefiting transport and industrial support services.

Despite the hopes for 2021, the near-term situation remains dim. The euro-area economy will likely shrink this quarter and policy makers have warned that uncertainty remains very high.

The European Central Bank is expected to boost monetary stimulus again next week to help the economy, with asset purchases and long-term loans seen as the prime instruments.

©2020 Bloomberg L.P.

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