The recovery of the euro economy stumbles … the region faces a crossroads as demand erodes


Yesterday’s survey showed that the recovery of the eurozone economy from its biggest decline ever faltered this month, especially in the services sector, as the pent-up demand that started last month thanks to the easing of the general isolation measures aimed at combating the Corona virus has eroded, to become at a crossroads, either to accelerate New growth either continued slowing.
To contain the spread of the virus, which has infected more than 22.5 million worldwide, governments imposed strict general isolation measures, forcing activities to close and citizens to stay at home, which led to a near-halt in economic activities, according to “Reuters”.
After easing many of those restrictions, activity in the eurozone grew last month at the fastest pace since mid-2018. But infection rates are rising again in parts of the region, and some previous restrictions have been reimposed.
The initial reading of the IBE has decreased. H. S Market PMI, which is a good measure of the resilience of the economy, fell to 51.6 from a July end reading of 54.9, which is a matter of concern for policymakers.
While the index remains above the 50 level separating growth from contraction, it falls short of all expectations in a Reuters poll that indicated no change from July.
An index measuring new activities fell to 51.4 from 52.7 and again, part of the activity in August came from companies completing a backlog.
Meanwhile, growth faltered in the services sector, which dominates the bloc, as the sector’s PMI fell to 50.1 from 54.7, falling short of all expectations in a Reuters poll that forecast a slight decline to 54.5.
As demand weakens, service companies cut the number of employees for the sixth month, at a sharper pace compared to July. The employment index fell to 47.7 from 47.9.
But factory activities, which did not suffer as sharp a decline as the service sector during the height of the pandemic, grew for the second month. The manufacturing PMI fell to 51.7 from 51.8, defying expectations from a Reuters poll for an increase to 52.9.
An index measuring production, and feeding the composite PMI, rose to 55.7 from 55.3.
Private sector growth in the euro zone slowed in August after a strong recovery in July due to the resurgence of the Covid-19 epidemic in various regions, according to the first estimates released yesterday by the Markit office.
Markit economist Andrew Harker commented on PMI figures, that “the economic recovery in the euro area lost its momentum in August, a trend that reflects weak demand in the context of the outbreak of the epidemic,” according to “French”.
This index fell to 51.6 points in August from 54.9 in July, a period marked by a strong recovery after several months of contraction linked to the emerging coronavirus. The numbers for August are worse than analysts had expected.
And when this indicator is higher than 50 points, this means that the activity is advancing, while it is declining if it is below this limit.
In August, “the revival of activity weakened due to the increase in the number of cases of Covid-19 in various regions of the euro area and the re-imposition of restrictions affecting especially the services sector,” according to Harker.
“The manufacturing sector continued to record strong increases in production levels and new orders,” he added. He believed that “the euro area is at a crossroads. It has two possibilities, either a new acceleration of growth in the coming months or a continuation of the slowdown after the initial recovery that followed the lifting of the closure measures.”
For Jessica Hinds, an analyst at Capital Economics, “The drop in the index in August indicates that the recovery that followed the lifting of the closure measures has begun to dissipate. It is expected that this activity will remain below pre-crisis levels for at least the next two years.”


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