4.15am EDT 04:15 Chris Williamson, chief business economist at IHS Markit, predicts that the eurozone economy could shrink by 7.5% this quarter – judging by today’s dire survey of purchasing managers. “April saw unprecedented damage to the eurozone economy amid virus lockdown measures coupled with slumping global demand and shortages of both staff and inputs.
Chris Williamson, chief business economist at IHS Markit, predicts that the eurozone economy could shrink by 7.5% this quarter – judging by today’s dire survey of purchasing managers.
“April saw unprecedented damage to the eurozone economy amid virus lockdown measures coupled with slumping global demand and shortages of both staff and inputs.
The extent to which the PMI survey has shown business to have collapsed across the eurozone greatly exceeds anything ever seen before in over 20 years of data collection. The ferocity of the slump has also surpassed that thought imaginable by most economists, the headline index falling far below consensus estimates.
Our model which compares the PMI with GDP suggests that the April survey is indicative of the eurozone economy contracting at a quarterly rate of approximately 7.5%.
Record fall in eurozone PMIs
Newsflash: The eurozone economy is suffering the steepest falls in business activity and employment ever recorded this month, as it sinks into recession.
The eurozone-wide composite PMI, just released, has hit an all-time low of 13.5 in April, down from a prior record low of 29.7 in March.
That’s the largest collapse in output ever — reflecting the wholesale shutdown of Europe’s economy this month. It implies an extremely sharp contraction in economic activity this quarter.
The eurozone economy suffered the steepest falls in business activity and employment ever recorded during April.
Any reading below 50 shows a contraction — and these are unpredecentedly bad numbers.
Bosses from factories and offices across the eurozone reported that their businesses were being very badly hurt by the Covid-19 lockdown.
Here’s the damage:
- Flash Eurozone Services PMI Activity Index(2) at 11.7 (26.4 in March). Record low (since July 1998).
- ▪ Flash Eurozone Manufacturing PMI Output Index(4) at 18.4 (38.5 in March). Record low (since June 1997).
Services sector companies in hospitality, accommodation, restaurants, travel and tourism saw especially steep falls in activity, with vast numbers of such companies either shutting down or hardly able to operate.
Many manufacturers also reported dramatically reduced demand or major shortages of staff and inputs, if they were able to keep open at all. Supply chain delays hit the highest ever reported.
The unprecedented slump in French and German growth this month has knocked the euro.
The single currency has dropped below $1.08 for the first time in over two weeks, down 0.3% today.
French and German economies slump
NEWSFLASH: The French and German economies are contracting at an unprecedented rate this month under the lockdown.
Data firm Markit’s latest surveys of purchasing managers, just released, shows that business activity in both countries slumped dramatically.
France’s ‘composite’ PMI, which covers manufacturers and service sector firms, has cratered to just 11.2 for April — down from 28.9 in March. A 50-point reading would show stagnation, so this is a real shocker – and the worst reading on record.
French private sector activity continued to plunge in April, with ongoing business closures stifling both supply and demand.
Germany’s composite PMI has sunk too, to just 17.1 from 35 in March. That also shows an unprecedented contraction in activity under the lockdown.
The decline in business activity across Germany deepened in April, with both services and manufacturing seeing record decreases in output as a result of the COVID-19 pandemic and subsequent lockdown….
Businesses reported a collapse in demand from clients both at home and abroad in April. The rate of decline in overall inflows of new work far exceeded the previous record seen in March, with new business received from abroad falling at a similarly sharp pace. In both cases, the decline was led by the service sector
I fear the eurozone-wide PMI, which also includes Spain and Italy, will be just as bleak. It’s due at 9am BST, followed by the UK’s report at 9.30am….
To put today’s plans into context, the UK only grew its national debt by £48.7bn in the last financial year:
(Proviso: those figures, released this morning, could be revised higher to cover extra Covid-19 spending in March)
Today’s borrowing plans have brought home just how eye-wateringly expensive the Covid-19 lockdown will be.
Duncan Weldon of The Economist points out that the UK will now borrow more in four months than it previously planned for the whole financial year.
Channel Four’s Paul McNamara says these new debts will be on the books for many years.
Here’s Sky’s Scott Beasley:
UK to borrow £225bn to cover Covid-19 spending
The UK has announced plans for a massive surge in borrowing over the next few months, to cover the cost of the Covid-19 pandemic.
Britain’t Debt Management Office says it plans to issue £180bn of bonds between May and July.
That’s up from £32.6bn in the same period a year ago, and more than the DMO had expected to raise over the entire year.
Most of this borrowing will be used to cover the cost of the government’s packages to tackle the outbreak, such as the wage retention scheme for workers who are furloughed.
The DMO says:
This remit revision takes into account implications for the government’s financing requirement of all measures announced by government to date to support the economy through the period of disruption caused by COVID-19.
But, it’s also on top of the £45bn which the DMO also raised in April alone to cover the first wave of Covid-19 spending.
In total, the UK will be borrowing £225bn over the first four months of this financial year – an astonishingly high total (the entire national debt is around £2 trillion).
The Treasury says:
“This higher volume of issuance is not expected to be required across the remainder of the financial year.”
Introduction: PMIs to show Covid-19 recession
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A fresh blizzard of data today will show us just how badly the world economy is suffering from the Covid-19 downturn.
Surveys of purchasing managers across the UK, Europe and the US are likely to give the same story — plunging activity, falling orders and rising unemployment, as the world falls into a recession.
This is likely to drive some of these PMI surveys of activity down to their lowest levels since they began.
Fiona Cincotta of City Index explains that a particularly grim PMI report could spook investors:
Sentiment clearly remain fragile and that could be magnified with the release of the PMI readings for the UK and Eurozone.
The service sector accounts for 80% of UK economic activity. In March the UK service sector contracted at the fastest pace on record, dropping to 34.5 on the index. And that was only the beginning of lock down! This months’ reading is expected to dive deeper into contraction territory to 29.
The manufacturing sector, which has not been as servery impacted by the stay at home measures is forecast to contract further to 42 in April down from 47.8 the previous month.
America is bracing for another horrific weekly jobless total. Economists predict that more than four million people filed new claims for unemployment benefit last week – which would take the total laid off in the crisis to over 25 million. That’s more than all the jobs created in the last decade.
Jim Reid of Deutsche Bank explains:
Over the last 4 weeks, a cumulative total of more than 22m claims have been made, which is around the number of jobs that were created in the decade of expansion. So it’s no exaggeration to call the scale of the declines unprecedented.
- 9am BST: Eurozone composite ‘flash’ PMI for April: expected to fall to 25.9, from 29.7
- 9.30am BST: UK composite ‘flash’ PMI for April: expected to fall to 31 from 36
- 1.30pm BST: US weekly jobless claims figures: expected to drop to 4.5m from 5.2m
- 3pm BST: US composite ‘flash’ PMI for April: