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Global consumer services output and new business fall at
fastest rates in PMI series history
Tourism sector takes especially strong hit following widespread
global lockdowns
Most notable impact felt in worst-affected European nations
such as Italy and Spain
As the outbreak of the coronavirus disease 2019 (COVID-19)
continues to escalate and widen, early signs from PMI data
signalled marked - often unprecedented - contractions across
national manufacturing and service sectors. Taking a deeper look
into finer sector detail, we can see that the worst-hit areas,
unsurprisingly, revolved around consumer services and tourism.
Global lockdowns and travel bans, alongside growing uncertainty as
to the longevity of the outbreak, led to the worst performance by
the global consumer services sector since data collection began in
October 2009.
Looking at the breakdown further (where data are available), the
downturn was focused on the tourism sector, most notably in Europe.
Key economies with large tourism sectors such as Italy and Spain
have seen the greatest impact of the disease in the region, as
medical professionals seek to turn the tide of the spread and
lockdowns have grown more draconian. As such, PMI data have pointed
to an unprecedented contraction across Europe.
According to the latest PMI sector data, the drop in both
domestic and foreign demand for services, largely stemming from
widespread lockdowns which include the closure of many restaurants
and bars, has resulted in an unprecedented decrease in new
business. The impact was most keenly felt in countries where
lockdowns have been in place for numerous weeks and the escalation
of the outbreak has been stark.
Leading the worst-performing sectors were those centred around
consumer services, which includes hotels, restaurants, media and
recreational pursuits. Also featuring near the bottom of the
ranking tables were real estate and transportation for all regions
where data were available, as travel and housing markets have
largely been forced to shutdown following emergency public health
measures.
With tourism accounting for a large proportion of overall GDP in
both Italy and Spain (around 13% and 15%, respectively), and the
high season fast approaching, the mass cancellations being made at
the moment will have a substantial impact on economic growth as we
head into the second quarter of 2020. In Italy, regions of great
importance to the sector have been the hardest hit, most notably in
Lombardy and Veneto. Alongside the loss of Thomas Cook going into
the 2020 season in Spain, travel bans will have exacerbated already
challenging demand conditions.
Not only is the sector's contribution to overall growth vital,
but also the number of people it employs will have an important
effect on overall employment. Following the global financial
crisis, unemployment (especially youth unemployment) across
southern Europe spiralled, something that could be a real
possibility once again if emergency measures are kept in place
throughout the high season and the global recovery is slow. March
PMI sector data signalled the fastest decline in workforce numbers
across the European tourism sector since data collection began.
Italy reported one of the fastest falls in overall employment
since the survey began in 1998, while Spain recorded the strongest
contraction in employment since the depths of the financial crisis
in March 2009, as both countries struggled to contain the virus
outbreak.
A slow recovery of employment, as evidenced following the
financial crisis, may only serve to prolong the downside risks to
economic growth moving forward.
Current forecasts signal marked
contractions
Although manufacturing sectors are expected to see a turnaround
soon after the end of emergency measures, at least in respect to
business levels stabilising, as has been seen following the
relaxing of rulings in China, uncertainty among consumers could
lead to a much more drawn out recovery in the service sector. The
continued escalation in cases across Europe has led to forecasts
being revised down further for 2020, with the eurozone expected to
contract 4.5%. Italy is forecast to decline by 6.0% and Spain by
5.0% during 2020, highlighting the severity of such a sharp shock
to economic activity.
Forthcoming economic data releases:
April 23rd: IHS Markit Eurozone Composite, Manufacturing and
Services Flash PMI (April data)
May 4th: IHS Markit Eurozone, Italy and Spain Manufacturing PMI
(April data)
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
