Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Flash Eurozone PMI rises from 13.6 in April to 30.5
Rates of decline ease from record lows in manufacturing and
services as COVID-19 restrictions are eased
Growth and jobs outlook marred by expectations of weak
demand
The eurozone economy remained stuck in its deepest downturn ever
recorded in May due to ongoing measures taken to control the
coronavirus disease 2019 (COVID-19) outbreak, according to
provisional PMI® survey data. However, the rate of decline eased as
parts of the economy started to emerge from lockdowns.
The flash IHS Markit Eurozone Composite PMI rose from an
all-time low of 13.6 in April to 30.5 in May, its highest since
February. By remaining well below the 50.0 no-change level, the PMI
registered a third successive monthly fall in output and continued
to indicate a rate of contraction in excess of anything seen prior
to the COVID-19 outbreak. The prior low of 36.2 was seen during the
peak of the global financial crisis in February 2009.
Our model, which compares the PMI with GDP but takes into
account 'non-linearity' during times of extremely strong growth or
decline, suggests that the May survey is indicative of the eurozone
economy contracting at a quarterly rate of approximately 5%, but
the actual GDP looks likely to be greater - in part due to the fact
that the PMI excludes retail and the self-employed (two areas of
the economy especially hard-hit by the pandemic), but also due to
the fact that current nowcasting is more an exercise of estimating
what proportion of the economy is still operating rather than
calculating growth rates. We currently expect GDP to fall by just
over 10% in the second quarter.
Past the worst?
The pandemic was again by far the most commonly cited cause of
falling output, resulting in widespread closures of non-essential
businesses, disrupting supply chains and hitting demand for a wide
variety of goods and services.
The rise in the PMI nevertheless indicated a markedly slower
pace of contraction compared to April's record collapse. Rates of
decline eased in manufacturing and services, reflecting both a
reduction in the number of companies reporting lower activity and
an increase in the number of firms reporting an improvement.
The service sector business activity index picked up from 12.0
in April to 28.7, its highest since February, but social distancing
and other virus-related lockdown measures continued to hit
businesses such as hotels, restaurants, travel and tourism and
other consumer-facing firms especially hard, resulting in the
third-steepest decline ever recorded.
The factory sector's output index1 meanwhile rose from 18.1 in
April to 35.4 in May, albeit likewise still indicating a rapid rate
of decline.
Looking by country, rates of output decline eased across France
and Germany, as well as collectively across the rest of the region,
from the unprecedented downturns seen in April, though in all cases
remained fiercer than any time prior to the COVID-19 outbreak.
Germany again saw a modestly milder downturn than France, while the
rest of the eurozone saw the steepest decline.
Demand worries hit job market
Jobs meanwhile continued to be cut at a rate unprecedented prior
to the COVID-19 lockdowns, the rate of staff cuts easing only
modestly compared to April's record. Similar rates of job shedding
were seen in services and manufacturing, as firms in both sectors
sought to cut capacity in line with weaker demand.
Furlough schemes were often cited as having reduced the
near-term need to reduce staffing numbers, but longer-term job
retention depends on the speed at which order books will refill.
Backlogs of work fell sharply again in May, registering the
second-steepest deterioration on record.
Brighter outlook marred by demand worries
Forward-looking indicators improved, though merely from low
bases. Overall inflows of new business fell to the third-greatest
extent ever seen by the surveys as demand slumped further across
both manufacturing and services, yet showed the smallest decline
for three months to add to signs that the downturn has bottomed
out.
Expectations of output in the coming 12 months meanwhile rose
for a second successive month from March's all-time low, albeit
with the number of pessimists continuing to exceed optimists and
the overall level of sentiment remaining below anything recorded
before the pandemic.
The rise in the PMI and its forward looking indicators adds to
expectations that the downturn should continue to moderate as
lockdown restrictions are further lifted heading into the summer.
All eurozone countries eased their COVID-19 containment measures to
some extent in May, helping to moderate the overall rate of
economic decline. However, while a further loosening of
restrictions is anticipated in coming months, some measures to
contain the virus are likely to remain in place until an effective
treatment or vaccine is found.
An additional concern is that demand is likely to remain
extremely weak for a prolonged period, putting further pressure on
companies to make more aggressive job cuts as government job
retention schemes expire. We therefore expect GDP to slump by
almost 9% in 2020 and for a full recovery to take several
years.
* COVID-19 containment index is based on information
relating to issues such as closures of schools, non-essential shops
and restaurants, as well as restrictions on public gatherings,
internal mobility and external borders. We also forecast how these
are expected to change in coming months, based primarily on
government announcements. A reading of 100 means severe
restrictions while a reading of zero indicate no
restrictions.
1Note that we focus on the manufacturing output index rather
than the composite manufacturing PMI as the latter includes
measures such as suppliers' delivery times and inventories, which
can distort the signal when analysing the survey data in terms of
estimating pure production trends.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
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.
