May 6, 2020 / 7:28 PM / a month ago

Euro zone business activity collapses at record pace in April

LONDON (Reuters) - Business activity across Europe almost ground to a halt last month as government-imposed lockdowns to stop the spread of the coronavirus forced factories, shops and restaurants to close and many leisure activities to cease, a survey showed.

FILE PHOTO: A businessman walks on the esplanade of La Defense, in the financial and business district in La Defense, west of Paris, April 10, 2014. REUTERS/Gonzalo Fuentes/File Photo

The coronavirus has infected nearly 3.7 million people globally and killed around 256,000 and, with citizens told to stay at home, supply chains have been massively disrupted.

To combat the economic impact of the virus, the European Central Bank has pledged to buy more than 1 trillion euros in assets this year and governments have outlined hundreds of billions in spending plans to support businesses and households.

But the effect of the collective efforts is limited.

IHS Markit’s final Composite Purchasing Managers’ Index (PMI) for the euro zone, seen as a good indicator of economic health, plummeted to 13.6 in April from March’s already dire 29.7, easily its lowest reading since the survey began in 1998.

That was a fraction better than the 13.5 preliminary reading but nowhere near the 50 mark that separates growth from contraction.

“The picture is dire. The overall view is that Germany is bad, Southern Europe looks even worse. Manufacturing is badly affected but not as bad as services,” said Holger Schmieding at Berenberg.

Germany’s services sector recorded its weakest ever performance, pulling down overall private sector activity in Europe’s largest economy to historically low levels.

French service providers saw an unprecedented collapse in business activity due to a nationwide lockdown that has forced all but non-essential firms to close.

The service industry in Italy, one of the countries hardest hit by the pandemic, shrank at the fastest rate in more than 22 years.

But, suggesting things there might pick up somewhat this month, Prime Minister Giuseppe Conte partially eased its lockdown on Monday, allowing more factories to open and greater freedom of movement.

Germany and Spain are among other economies gradually emerging from lockdowns, but the outlook for an easing of restrictions elsewhere is less certain.

Sister surveys have shown business activity across Asia and the Americas also ground to a halt last month. Britain’s economy is on course for an unprecedented 7% quarterly contraction its PMI showed on Tuesday.

Forward-looking indicators in the euro zone survey were grim and the headline PMI pointed to GDP contracting at a quarterly rate of 7.5%, IHS Markit said. A Reuters poll late last month was even more gloomy, pencilling in a 9.6% contraction this quarter.

Markets however largely ignored the data, instead focusing on mixed corporate earnings, lingering concerns about the easing of lockdowns and simmering U.S.-China tensions.

STAY HOME, SAVE LIVES

Demand in the euro zone all but dried up as consumers concerned about their health and job prospects stayed home and stopped spending despite firms cutting prices at one of the steepest rates in the survey’s history.

Those concerns are not unfounded. New coronavirus cases — and deaths — are still being reported daily and the employment index sank to 33.4 from 42.2 as boarded-up businesses shed workers at the fastest pace since the survey began.

With swathes of the economy closed, the bloc’s dominant services industry was crippled and activity all but ceased. Its PMI sank to a survey low of 12.0 from 26.4 in March, slightly higher than the 11.7 flash estimate.

As some countries in the region are slowly starting to ease lockdown measures, while still very downbeat, optimism improved a touch. The services business expectations index rose to 34.3 from March’s survey low of 33.5.

“Quite a few people think April was the trough. If you are asked ‘do you think in six months will the situation be better?’, if you are in absolute dire straits, you are inclined to say ‘yes.’ It is hope,” Schmieding said.

Editing by Catherine Evans and John Stonestreet

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