LONDON (Reuters) - Euro zone economic activity has slipped back into decline this month as renewed restrictions to control the coronavirus pandemic forced many businesses in the bloc’s dominant service industry to limit operations, a survey showed on Friday.
A second wave of the virus is sweeping across Europe, and nearly 90% of economists polled by Reuters said there was a high or very high risk that this would halt the nascent euro zone economic recovery.
IHS Markit’s flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, suggests that is already happening.
It fell to 49.4 from September’s final reading of 50.4, below the 50-mark separating growth from contraction and only slightly better than the 49.3 predicted in a Reuters poll.
That headline number was dragged down by the service industry’s PMI, which sank to 46.2 from 48.0, below expectations for a more modest drop to 47.0.
“The euro zone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity,” said Chris Williamson, chief business economist at IHS Markit.
It will likely be a chilling winter for the job market which until now has been shielded by government furlough schemes as the uncertain outlook meant firms reduced headcount for an eighth month.
The composite employment subindex nudged up to 48.1 from 47.7. But the Reuters poll concluded the bloc’s jobless rate would not peak for at least six months.
With infection rates and the death toll rising, optimism fell. The services business expectations index dropped to 54.6 from 59.2, its lowest since May when the initial lockdowns were being eased.
Factories, however, fared much better than expected. The flash manufacturing PMI climbed to a 26-month high of 54.4 from 53.7, well ahead of the median forecast in the Reuters poll for 53.1.
An index measuring output, which feeds into the composite PMI, rose to 57.8 from 57.1, its highest since early 2018.
Strong demand for manufactured goods meant factories were able to increase their prices for the first time since mid-2019. The output price index rose to 50.2 from 49.6.
That will provide some relief to policymakers at the European Central Bank as inflation, which they want close to 2%, has been negative for two months.
“The prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of COVID-19 containment measures,” Williamson said.
Reporting by Jonathan Cable; Editing by Hugh Lawson
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