eurozone Archives - Pat Carroll PCCO - Chartered Accountants & Tax Advisors

Euro zone business activity collapses in March as coronavirus spreads – PMI

Euro zone business activity collapsed last month as attempts to contain the coronavirus pandemic pushed governments to shut down vast swathes of their economies, from shops to factories to restaurants, a survey showed today. 

The pandemic has infected more than a million people worldwide, paralysing economies as consumers worried about their health and job security stay indoors and rein in spending. 

IHS Markit’s final Composite Purchasing Managers’ Index plummeted to a record low of 29.7 in March from February’s 51.6.

This was lower than the flash reading of 31.4 and marking by far its biggest one-month drop since the survey began in July 1998. The 50 mark separates growth from contraction. 

“The data indicate that the euro zone economy is already contracting at an annualised rate approaching 10%, with worse inevitably to come in the near future,” said Chris Williamson, chief business economist at IHS Markit. 

That was borne out by the survey as demand fell at the fastest rate on record. The new business index sank to 27.7 from 51.2, much weaker than the flash reading of 29.5. 

Like their manufacturing counterparts, activity in the bloc’s dominant service industry also almost ground to a halt. 

Its PMI dropped to a survey-low of 26.4 from February’s 52.6, below the preliminary estimate of 28.4. 

“The service sector is currently seeing an especially severe impact from the COVID-19 outbreak, with travel, tourism, restaurants and other leisure activities all hit hard by virus containment measures,” Williamson said. 

With the lockdowns likely to last for some time, optimism has all but dried up. 

The services business expectations index almost halved to a survey low of 33.5 from 61.3, more than eight points below its previous record low set in November 2008, just as the euro zone debt crisis was taking shape.

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Euro zone faces 2% recession, 10% if lockdown lasts – S&P Global

The coronavirus pandemic will push the euro zone and Britain into recession this year, with their economies expected to shrink by as much as 2%, the international ratings agency S&P Global warned today. 

“The euro zone and UK are facing recessions. We now expect GDP (gross domestic product) to fall around 2% this year due to economic fallout from the coronavirus pandemic,” it wrote in a report.

The spread of Covid-19 has forced three billion people around the world into lockdown and economists say the restrictions could cause the most violent recession in recent history. 

Central banks and governments have rolled out a wave of unprecedentedly large fiscal and monetary policy packages to shore up their economies.  

To prevent a credit crunch, central banks have injected liquidity and cut rates to lower banks’ refinancing costs and have implemented large asset purchase programmes. 

S&P said a 2% recession would amount to a loss in real GDP of about €420 billion in 2020, compared with its previous forecast from November 2019.  

“We expect a gradual rebound of at least 3% in 2021,” the agency said. 

S&P said that “swift and bold policy responses taken now are key to avoiding permanent losses to GDP later.”

“Risks are still to the downside, as the pandemic might last longer and be more widespread than we currently envisage. For example, we estimate a lockdown of four months could lower euro zone GDP by up to 10% this year,” it said.  

Looking at individual countries, S&P is pencilling in economic contraction of 2.6% for Italy, the hardest-hit country by the pandemic, and Spain’s economy is expected to shrink by 2.1%. 

The agency is forecasting a 1.9% contraction in GDP for both Germany and Britain and 1.7% for France. 

Another ratings agency, Moody’s, yesterday forecast that the world’s 20 most industrialised countries would likely suffer a recession this year because of the Covid-19 pandemic.  

It estimated that the G20’s overall GDP would contract by 0.5%, with the US economy shrinking by 2% and the euro zone by 2.2%. 

China, however, despite suffering an outbreak of the novel coronavirus before everyone else, could see economic activity expand by 3.3%, a level that is nonetheless well below average for the world’s second biggest economy.

G20 leaders are to hold an online summit today after criticism the group has been slow to address the crisis. 

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Euro zone business lending still weak amid slowdown

Lending to euro zone companies held at a two-year low last month despite lending to households hitting yet another post-crisis high, European Central Bank data showed today. 

Today’s new figures highlighted a growing divergence in the bloc’s economy. 

Struggling under the weight of a global trade war and a manufacturing recession euro zone exporters have suffered.

But euro zone services and consumer spending have remained resilient, buffering the economy during its two-year slowdown. 

Hoping to stop the spread of economic gloom, the ECB has thrown further stimulus at the bloc’s economy, all in the hope of keeping borrowing conditions low so lenders would keep credit flowing to firms. 

Still, lending growth to businesses has slowed for much of last year and held steady at 3.2% last month, as a slowdown in Germany offset better lending growth in Italy, France and Spain. 

In Germany, the bloc’s biggest country, unadjusted corporate lending eased to 5.6% from 6.5%.

But in Italy, one of the weakest performers in the euro zone, corporate lending contracted by 4.5%, an improvement compared with the -5.3% a month earlier. 

Households fared better, as lending picked up to 3.7% from 3.6% in December, the highest rate since December 2008 and continuing a near steady acceleration that started five years ago. 

In measures targeted specifically at lending, the ECB regularly provides banks with ultra-cheap, long-term funds and exempted much of their extra cash from its punitive charge on excess reserves. 

The annual growth rate of the M3 measure of money supply, which often serves as an indicator of future activity, picked up to 5.2% from 4.9%, underperforming expectations for 5.3% in a Reuters poll.

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Euro zone GDP slows as expected in fourth quarter

Euro zone economic growth slowed as expected in the last three months of 2019 as gross domestic product shrank in France and Italy compared to the previous quarter.

But employment growth picked up more than expected, official estimates showed today. 

The European Union’s statistics office Eurostat said GDP in the euro zone expanded 0.1% quarter-on-quarter in the three months from October to December, as announced on January 31.

This gave a 0.9% year-on-year gain – a downward revision from the previously estimated 1% growth. 

The quarterly growth rate slowed compared to the 0.3% expansion in the third quarter because of a 0.1% contraction in the second biggest economy France and a 0.3% contraction in the third biggest Italy. 

Growth in Germany, the biggest euro zone economy, stagnated. 

Eurostat also said that euro zone employment rose 0.3% quarter-on-quarter in the last three months of 2019 for a 1% year-on-year gain. 

Economists polled by Reuters had expected a 0.1% quarterly rise and a 0.8% annual increase. 

Separately, Eurostat said the euro zone’s trade surplus with the rest of the world was €23.1 billion in December, up from €16.3 billion a year earlier.

This brought the total for the whole of 2019 to €225.7 billion, up from €194.6 billion in 2018.

Adjusted for seasonal factors, the trade surplus was €22.2 billion in December, up from €19.1 billion in November as exports rose 0.9% on the month and imports fell 0.7%.

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EU leaves euro zone growth forecast unchanged for this year and next

The European Commission has today kept its economic forecast for moderate euro zone growth for this year and 2021. 

But it raised slightly its projection for inflation, noting the spread of the coronavirus was the key downside risk. 

In an interim outlook for gross domestic product (GDP) growth and consumer inflation for the 19 euro zone countries for 2020 and 2021, the Commission said growth in the euro zone would remain at 1.2% this year and next, as in 2019. 

“The outlook for 2020 and 2021 is unchanged as more positive developments are counterbalanced by negative events elsewhere,” the Commission, the EU’s executive, said. 

Inflation is likely to accelerate slightly, the Commission said, because of the likelihood of higher oil prices and the effect of higher wages passing through to core prices. 

The Commission raised its forecast for consumer price growth to 1.3% in 2020 and 1.4% in 2021 from 1.2% and 1.3% respectively predicted last November. 

The European Central Bank wants to keep inflation below, but close to 2% over the medium term, and has been buying government bonds on the secondary market to inject more cash into the banking system and stimulate lending. 

“Still, domestic price pressures are expected to build up only slowly as firms are likely to continue tolerating lower profit margins,” the Commission said. 

The EU executive said that while the first phase of a trade deal between the US and China helped reduce risks to some extent, the spread of the Wuhan coronavirus was now the main threat to the growth forecast. 

“The baseline assumption is that the outbreak peaks in the first quarter, with relatively limited global spillovers. The duration of the outbreak, and of the containment measures enacted, are a key downside risk,” the Commission said. 

“The longer it lasts, the higher the likelihood of knock-on effects on economic sentiment and global financing conditions,” it added. 

The Commission also said that while trade relations between the EU and Britain, which left the bloc on January 31, were governed by the transition period agreement until the end of the year, there was “considerable uncertainty” as to what trade deal, if any, would be in place from the start of 2021.

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Euro zone industrial output tumbles more than expected in December

Euro zone manufacturing output plunged more than expected in December ending a weak quarter for the single currency area, official estimates showed today. 

Industrial production fell 2.1% month-on-month in the euro zone, the EU statistics agency Eurostat said, in a slump that was worse than the 1.6% fall predicted by economists polled by Reuters. 

Year-on-year, output fell 4.1% – much more than market forecasts of a 2.3% drop. 

The negative monthly reading followed a 0.9% drop in October and a stalled production in November, which was revised down from the previously estimated 0.2% rise, as euro zone manufacturers were battered by global trade tensions. 

Production in December fell significantly in all major economies in the bloc, pointing to a possible downward revision of gross domestic product (GDP) growth for the last quarter. 

At the end of January, before the output data was known, Eurostat estimated the euro zone grew 0.1% in the last quarter. 

The December fall was driven by a 4.0% drop in the output of capital goods, which implies lower investment appetite among industry managers. 

Despite the bad end of the year, businesses were upbeat in January according to sentiment indicators released in past days, in a sign that abating trade tensions between the US and China may boost morale. 

The effects of the coronavirus outbreak remain, however, unclear.

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Euro zone investor morale falls in February on coronavirus fears – Sentix

Investor morale in the euro zone fell for the first time in four months in February over fears that China will not be able to contain the coronavirus outbreak, a survey showed today. 

Sentix’s index for the euro zone fell to 5.2 from 7.6 in January. The Reuters consensus forecast was for a fall to 4.1. 

The slight drop reflects the fact that investors think the economic damage from the novel virus has been mostly limited to China, said Sentix chief Manfred Huebner.

The global economy was getting impetus from the US, he added.

“The outbreak of the coronavirus and the subsequent drastic measures taken by the Chinese government cast a shadow over the economic outlook,” Mr Huebner. “Fortunately, so far the effect is limited.” 

“However, in view of the significant declines in Chinese economic data, it is clear that the negative effect is likely to be much greater if it does not become apparent in the coming days that the spread of the virus has been taken away,” he added. 

Reflecting such fears, a sub-index measuring investor expectations in the euro zone fell to 6.5 from 9.8 in January.

While morale deteriorated in Asia and the euro zone, the picture was different in the US, which is showing resilience, the survey showed. 

The index for the world’s biggest economy rose to 20.3 from 15.9 in January, reaching its highest level since November 2018. 

Sentix surveyed 1,086 investors between February 6 and 8.

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Euro zone economy remains weak but green shoots emerging

Euro zone business activity remained lacklustre at the start of the year, a survey showed today but there were some glimmers of hope for policymakers. 

The survey comes a day after the European Central Bank said the manufacturing sector remained a drag on the euro zone economy. 

ECB rate-setters did not make any policy change yesterday, standing by their pledge to keep buying bonds and, if needed, cut interest rates until price growth in the euro zone heads back to their goal. 

But the slowdown in euro zone economic activity has probably bottomed out, according to a Reuters poll last week, which showed while the outlook for growth and inflation remained lukewarm the chances of a recession have faded. 

That outlook was somewhat supported by IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, which held at 50.9 in January.

But it missed the median prediction in a Reuters poll for 51.2 – anything above 50 indicates growth. 

After today’s PMI reading, the euro continued to languish near a seven-week low after the ECB’s more dovish tone at Thursday’s meeting than some had expected. 

An earlier PMI from Germany, Europe’s largest economy, showed the private sector gained momentum as growth in services activity picked up and the pullback in manufacturing eased. 

French activity expanded at a weaker pace as nationwide strikes weighed and IHS Markit cautioned growth outside of Germany and France slowed to a six-and-a-half year low. 

The UK’s performance bettered the euro zone’s for the first time since December 2018, a separate PMI showed, the strongest evidence yet of a post-election boost to the economy that could deter the Bank of England from cutting interest rates next week. 

The euro zone’s headline index was bogged down by a still struggling factory industry. 

The manufacturing PMI marked the 12th month below the break-even mark, registering 47.8 – albeit an improvement on December’s 46.3 and well above the Reuters poll’s 46.8. 

An index measuring output, which feeds into the composite PMI, rose to 47.5 from 46.1, its highest since August. 

While most forward-looking indicators in the manufacturing PMI remained in negative territory, they were moving in the right direction, today’s survey showed. 

The new orders, employment, backlogs of work and quantity of purchases indexes were all still sub-50 but did rise. 

However, the PMI for the bloc’s dominant services industry weakened to 52.2 from 52.8, confounding expectations for no change. 

And possibly of concern to policymakers, demand weakened suggesting there will not be a significant turnaround anytime soon. The services new business index fell to 51.5 from 52.1. 

But optimism about the year ahead bounced. The composite future output index climbed to 61.2 from 59.4, its highest reading since September 2018. 

Meanwhile, euro zone consumer confidence remained unchanged in January from December, official flash figures released yesterday showed. 

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Euro zone business activity close to stagnation despite services bounce – PMI

Euro zone business activity remained close to stagnation at the end of last year, a survey showed today, as an upturn in services activity only partially offset a continued decline in the bloc’s manufacturing industry. 

IHS Markit’s final euro zone composite Purchasing Managers’ Index (PMI), seen as a good indicator of economic health, nudged up to 50.9 in December from November’s 50.6. 

That beat a preliminary estimate which suggested no change from the previous month but remained close to the 50 mark separating growth from contraction. 

“Another month of subdued business activity in December rounded off the euro zone’s worst quarter since 2013.

“The PMI data suggest the euro area will struggle to have grown by more than 0.1% in the closing three months of 2019,” said Chris Williamson, chief business economist at IHS Markit.

That is worse than the 0.2% growth predicted in a December Reuters poll. 

A PMI for the bloc’s dominant services industry bounced to 52.8 from November’s 51.9, above a preliminary reading of 52.4. 

But a manufacturing PMI out last week showed factory activity contracted for an 11th month in a row in December. 

The upturn in services meant firms were at their most optimistic about the year ahead since May. A composite future output PMI jumped to 59.4 from 57.9. 

Indicating services activity may remain resilient, firms in the sector were unable to match demand last month for the first time since July. The backlogs of work index climbed to 51 from 49.7.

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Euro zone growth curbed by trade, retail sales slowdown

The euro zone economy grew at a modest pace in the third quarter with a negative impact from trade, while retail sales fell at their sharpest rate this year in October, data showed today. 

Gross domestic product (GDP) in the euro zone was up 0.2% in the three months from July to September.

This was the same figure as the flash estimate released in October and unchanged from the second quarter. 

Retail sales in the euro zone in October fell by 0.6%, double the amount expected in a Reuters poll, and were up a modest 1.4% year-on-year. The monthly decline was the steepest fall of 2019. 

The data confirmed a sombre outlook for the single currency bloc, which is facing threats and uncertainty over Brexit and rising global trade conflicts. 

Britain had been set to exit the European Union at the end of October, a deadline since pushed back until the end of January. 

In trade, the US outlined the first phase of a deal to end its conflict war with China in October, but the two are still arguing about the details. 

Year-on-year, euro zone expansion was 1.2%, also the same figure as in the second quarter of the year. 

The bloc’s largest and third largest economies, Germany and Italy, grew by just 0.1% during the quarter, while in France, the second largest economy, growth was 0.3%. 

Household spending was the strongest overall contributor, boosting euro zone growth by 0.3% percentage points, followed by government spending and capital investment at 0.1 points.

However, the contributions of trade and of inventory changes were negative, in the case of trade for a second consecutive quarter. 

In the October retail sales figures, non-food sales declined, particularly online and mail order sales, although these tend to pick up in November and December ahead of the Christmas period. 

Eurostat also said that the growth of employment in the euro zone slowed in the third quarter to 0.1% from 0.2% in the second quarter. 

Year-on-year the figure was also softer at 0.9% from 1.2% previously.

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