Eurozone Economy Heads For Double-Dip Recession

Following what were stringent coronavirus lockdowns enveloping Europe for much of the spring months, the ensuing economic recovery showed some hopeful gains as the virus began to dissipate over the summer. However, a sudden, and largely anticipated resurgence of the pandemic resurfaced following the summer calm, threatening to unwind any economic gains in the eurozone area.

According to the latest IHS Markit Composite Purchasing Managers’ Index reading, which provides a gauge of economic health, the index dropped from 50.4 to 50 in September, suggesting that the 19-country bloc may be headed for some dark times ahead. The 50 mark, which stands between economic contraction and growth, was largely offset by the services PMI, which dropped from 48 to 46.9– the lowest reading since May.

IHS Markit chief business economist Chris Williamson noted that Europe’s service providers have been hit significantly harder amid the pandemic, mostly as a result of subdued demand in the hospitality sector. This in turn has dragged down the rise in manufacturing, which posted an optimistic increase in September. However, now that the lockdowns are once again being imposed across much of Europe in wake of the second, more severe coronavirus wave, what was once a positive hope of a steady economic recovery for the euro zone is beginning to fade.

According to official data, the euro zone economy contracted by 12.7% in the second quarter compared to the same period only a year ago. In the meantime, IHS Markit noted that its business expectations index fell from 59.2 to 54.2, after already remaining lower than expected throughout the year, as well as the prior two financial crises. In order to contain the likely economic fallout, last week, the the European Central Bank said that it will unveil a new set of monetary actions.

Information for this briefing was found via IHS Markit and Eurostat. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.