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Eurozone activity ticks up as lockdowns ease

Valentina Romei in London

The fall in Eurozone business activity is showing signs of bottoming out after the easing of lockdown restrictions, but the prospect remains for an “unprecedented” fall in GDP in the second quarter.

The IHS Markit eurozone flash purchasing manager index for services rose to 28.7 in May from 12 in April, when it was the lowest since it began recording the data in 1997. The reading exceeded the 25 forecast by economists polled by Reuters.

“The eurozone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April,” said Chris Williamson, chief business economist at IHS Markit. “Second quarter GDP is still likely to fall at an unprecedented rate.”

The eurozone PMI index for manufacturing rose to 39.5 in May, from 33.4 in April, pushing the composite PMI, an average of the two sectors, to 30.5 from the previous 13.6.

Despite the improvement, the PMI continued to indicate a rate of contraction “in excess of anything seen prior to the Covid-19 outbreak”, stated the report. Jobs continued to be cut at a rate unprecedented prior to lockdowns.

The score is based on respondents’ report on the change in activity at their companies compared with the previous month — a reading below 50 indicates a majority of businesses reporting a deterioration. May’s PMIs increases indicate a smaller proportion of companies reported a deterioration compared with April.

Germany’s contraction slowed more in the services sector, reflecting the re-opening of shops and some bars and restaurants and resulting in an overall stronger improvement. In France, the decline eased more in the manufacturing sector as restrictions remain stringent.

The PMI index for German manufacturing rose marginally to 36.8 in May, from 34.5 in April. The composite PMI, an average of the services and manufacturing sectors, improved to 31.4 in May from 17.4 in April.

“This, effectively, is evidence that the German economy is doing better than its peers,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

But German companies reported a lack of new business and a sharp decline in backlog, which led to the third monthly decrease in employment.

Germany began easing lockdown from April 20 and is now one of Europe’s largest economies with the least stringent measures.

Germany’s economy has been less affected by the pandemic than other European countries with GDP falling 2.2 per cent in the first quarter compared with 5.8 per cent for France.

Flash estimates are published one week before the final results and are based on about 85 per cent of the typical responses.

The eurozone economy shrank 3.8 per cent in the first quarter, the largest drop since record began in 1995.

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