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Eurozone Private Sector Shrinks In November Amid Covid-19 Lockdowns

eurozonepmi 042117 23nov20 lt

The euro area private sector contracted sharply in November as member countries reintroduced more restrictions to counter the spread of Covid-19 infection, flash survey data from IHS Markit showed Monday.

The composite output index plunged to a six-month low of 45.1 from the neutral 50.0 in October. The score was forecast to fall to 45.8.

The further downturn of the economy signaled for the fourth quarter represents a major set-back to the region's health and extends the recovery period, Chris Williamson, chief business economist at IHS Markit said.

After a 7.4 percent contraction of GDP in 2020, IHS Markit expects only a 3.7 percent expansion in 2021.

The drop in the composite index to well below 50 adds to the evidence that the euro-zone economy will post another sizeable contraction in the fourth quarter, Jack Allen-Reynolds, an economist at Capital Economics, said.

But with vaccines looking increasingly likely to be rolled out in the first half of next year, the surveys show greater optimism about 2021.

The deteriorating performance was broad-based, albeit with the service sector hardest hit from virus containment measures.

The services Purchasing Managers' Index slid to 41.3 from 46.9 in the previous month. The reading was seen at 42.5.

At the same time, the manufacturing PMI came in at 53.6, down moderately from 54.8 in October. The expected score was 53.1.

Inflows of new orders advanced in manufacturing at the slowest rate recorded over the past five months, while new business placed at service providers collapsed to an extent not seen since May.

Employment fell across the Eurozone as a whole for a ninth consecutive month in November.

Further, companies resorted to discounting to boost sales in the service sector, causing selling prices to fall at a faster pace. Meanwhile, goods prices increased at the fastest pace since May 2019 due to higher input costs.

Looking ahead, business expectations about the coming 12 months recovered most of the slump seen in October to run at the second highest since February.

Divergent trends were also seen across the region, with Germany again bucking the wider downturn.

Germany's private sector growth moderated to a five-month low in November due to the tightening of Covid-19 restrictions.

The composite output index dropped to 52.0 in November from 55.0 in October. The reading was forecast to fall sharply to 50.4.

At 46.2, the services Purchasing Managers' Index reached a 6-month low. The score was forecast to drop to 46.3 from 49.5 in October.

At the same time, the factory PMI came in at an elevated level of 57.9, but down from 58.2 a month ago. The expected reading was 56.5.

Elsewhere, France's private sector contracted at the fastest pace in six months in November predominantly driven by the weakness in services.

The composite output index fell to 39.9 from 47.5 in October. Nonetheless, the reading was above economists' forecast of 34.0.

The flash services PMI dropped notably to 38.0 from 46.5 a month ago but slightly above the forecast of 37.7.

At the same time, the manufacturing PMI came in at 49.1 in November versus 51.3 in the previous month. The score was expected to drop moderately to 50.1.

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