Economy

Pandemic throws global economy into deeper decline

Euro zone, British PMIs sink to all-time lows

A view of the production of wheels of ‘A-Class’ Mercedes Benz cars at an assembly line at the car manufacturer Daimler in Rastatt, Germany. Photograph: Ronald Wittek/EPA

Thu Apr 23 2020 - 11:27

Global economic activity all but ground to a halt this month as government-imposed lockdowns due to the coronavirus pandemic took a particularly heavy toll on the world’s service industry, surveys showed on Thursday.

The outbreak, which has infected more than 2.6 million people and killed more than 180,000 globally, has also crippled manufacturing, shutting factories and upending supply chains. Meanwhile, with restaurants, bars and other leisure options closed, holidays canceled and travel restricted, the situation in the services industry was dire.

To try and support economies reeling from the coronavirus pandemic, governments and central banks around the world have unleashed unprecedented amounts of fiscal and monetary support.

But Asia's economic woes, seen in flash purchasing managers' indexes, were echoed in surveys from Europe. Data from the United States later on Thursday are expected to show massive contractions in the factory and services sectors there, too. In the euro zone, IHS Markit's Flash Composite Purchasing Managers' Index (PMI), seen as a good gauge of economic health, sank to 13.5, by far its lowest reading since the survey began in mid-1998 and considerably below all forecasts in a Reuters poll.

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Even the most pessimistic contributor to the poll had predicted a reading of 18.0. As countries began to shut down last month the index staged its biggest one-month fall on record in March, hurtling below the 50 mark that separates growth from contraction to 29.7.

"As expected, the euro zone April PMI fell even further, confirming the deep contraction," said Bert Colijn at ING. "What does the survey really tell us that we don't already know from looking out the window and seeing empty streets and closed shops? Not that much actually."

IHS Markit said the PMI was consistent with the bloc’s economy contracting 7.5 per cent this quarter. It was an even grimmer picture in Britain, where coronavirus hit the economy with more force than any forecaster had feared as businesses reported an historic collapse in demand during a nationwide lockdown. Its PMI fell to a new record low of 12.9, and the scale of the collapse all but guarantees a huge contraction in the world’s fifth-largest economy.

That will add to doubts about whether the financial help offered by the government is reaching businesses quickly enough. Britain’s economy will contract 13.1 per cent this quarter, a Reuters poll predicted earlier on Thursday, which would be the biggest quarterly drop since second World War.

Stocks and other risky assets barely batted an eyelid on the PMIs, most of which is made up of backward-looking data, as caution set in ahead of a Eurogroup meeting to discuss joint stimulus measures. That caution also offset optimism over a fresh round of U.S. coronavirus aid and a rebound in oil prices. "The rather muted reaction relative to the amplitude of the misses proves the lack of surprise for markets, which are almost immune to data at the moment," said Olivier Konzeoue at Saxo Markets. - Reuters

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