Euro zone business activity shrinks to six month low after new coronavirus lockdowns

LONDON — Economic activity in the euro zone sank once again in November after governments introduced new lockdowns and social restrictions to contain further spreading of the coronavirus.

However, news that a Covid-19 vaccine might soon be ready for distribution has made businesses more confident about returning to their normal activity levels in the next 12 months.

The flash euro zone PMI composite output index, which looks at activity in both manufacturing and services sectors, came in at 45.1 in November — the lowest reading in six months, and down from 50 in October.

A reading below 50 represents a contraction in business activity.

“The eurozone economy has plunged back into a severe decline in November amid renewed efforts to quash the rising tide of COVID-19 infections,” Chris Williamson, chief business economist at IHS Markit said in a statement.

Amid a second wave of coronavirus cases in the fall, many European nations tightened social restrictions in October, which has dented their economies once again. The economic shock was once again felt mostly in the services sector with non-essential shops closed, restrictions on movement and curfews.

However, these decisions have contributed to a cresting of new cases as well.

As a result, European leaders are planning to lift some of the restrictions in the coming weeks, albeit in a very gradual manner.

This is because some nations are still grappling with a high number of daily infections and leaders want to avoid a third wave of new cases in a few weeks’ time.

“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,” Williamson said, adding that IHS Markit foresees a 7.4% contraction of GDP (gross domestic product) in 2020 and only a 3.7% expansion in 2021.

He added that the latest vaccine news has lifted the spirits of German businesses who are now expecting a return to normality over the next 12 months.

“This looks to have been a supportive factor in the latest employment figures, which show factory jobs numbers moving closer to stabilization and services payrolls edging higher,” he said.