Eurozone economy starts to rebound in May from record contraction, years to full recovery

BARCELONA (ICIS)–The eurozone’s economy is slowly bouncing back from the most severe contraction on record, according to final purchasing manager index (PMI) numbers for May, published on Wednesday.

The IHS Markit composite index, which covers manufacturing and services, rose to 31.9 in May, up from 13.6 in April as coronavirus lockdowns were gradually eased and the region’s economy started to pick up. The figures show the eurozone’s economy is still contracting, but at a slower pace as a reading below 50.0 signifies shrinkage of economic activity.

There was an unusually large upwards revision from flash PMI numbers published in May.

The four largest euro area economies registered slower – albeit still severe – contractions in activity. Italy was the best-performing, followed by Germany and France. Spain remained the weakest-performing nation.

Levels of new business continued to fall, though at a slower rate, as the lock downs continued to hurt businesses.

Several of the purchasing managers who responded to the survey reported cuts to staffing levels. Other companies had taken advantage of furloughing schemes.

According to Eurostat there was an increase in eurozone unemployment in April ,to 7.3% from 7.1% in March as around 211,000 people lost their jobs during the month.

Prices also continued to fall in May. Input prices were affected by reduced employment expenses and lower prices for oil-related raw materials. The challenging business environment led to a fall in output prices.

YEARS TO FULL RECOVERY
Chris Williamson, chief business economist at Markit, said: “Our forecasters expect GDP to slump by almost 9% in 2020 and for a recovery to pre-pandemic levels of output to take several years.”

He highlighted the prospect of sustained weak demand growth caused by high levels of unemployment and subdued corporate spending.

The chemical industry in Europe has been badly affected by the collapse in demand with April and May the worst months so far. As lockdowns are lifted there are hopes of improvement.

Sectors reliant on durable goods such as automotive, construction and electronic goods have been worst affected as consumers prefer to save rather than spend on big-ticket items.

There have been bright spots, however, with polymers for food packaging and products such as isopropanol, seeing a surge in demand.

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Pictured: A row of unsold cars (source: David Zalubowski/AP/Shutterstock )