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Coronavirus: Euro slips as data points to historic crash in eurozone economy

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·Senior City Correspondent, Yahoo Finance UK
·3-min read
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A man wearing a face mask walks in front of a poster recommending people to stay at home, at a department store in Berlin, Germany, Monday, April 20, 2020. Europe's biggest economy, starts reopening some of its stores and factories in parts of the country after weeks of lockdown due to the new coronavirus outbreak. (AP Photo/Markus Schreiber)
A man wearing a face mask walks in front of a poster recommending people to stay at home, at a department store in Berlin, Germany. (Markus Schreiber/AP)

The euro was under pressure on Thursday morning as closely watched private sector surveys suggested a historic contraction in the eurozone economy due to COVID-19.

IHS Markit’s flash eurozone purchasing managers’ index (PMI) for April came in at 13.5, which was worse than economists had expected and the lowest reading since the survey began in 1998. The survey measures expectations of business activity within the private sector.

“April saw unprecedented damage to the eurozone economy amid virus lockdown measures coupled with slumping global demand and shortages of both staff and inputs,” said Chris Williamson, chief business economist at IHS Markit.

“The extent to which the PMI survey has shown business to have collapsed across the eurozone greatly exceeds anything ever seen before in over 20 years of data collection.”

PMIs register on a scale of 0 to 100. Anything above 50 signals growth, while anything below signals contraction.

The euro was down 0.2% against the dollar to $1.0799 (EURUSD=X) shortly after the data was published, while the pound was trading 0.2% higher against the single currency at €1.1424 (GBPEUR=X).

READ MORE: Coronavirus: UK economy suffers record blow 'with worse to come'

PMIs had already fallen to historic lows in March and the preliminary numbers for April were worse than expected. Economists had forecast composite eurozone PMI of 25.7 in April, down from 29.7 in March.

IHS Markit said the decline between March and April was “by far the largest monthly collapse in output recorded in over two decades of survey data collection.”

The collapse in business activity has also led to the largest ever fall in employment ever recorded by IHS Markit’s survey.

“In some cases, the employment decline reflected furloughed workers, but even if these workers are excluded the fall in employment was still among the steepest ever recorded by the survey,” IHS Markit said.

Signs of sharply shrinking economic activity come after strict lockdown measures were introduced across much of the eurozone, effectively bringing many national economies to a halt. France introduced a strict lockdown on 17 March, while Germany introduced strict measures on 22 March.

Country specific data released earlier on Thursday by IHS Markit pointed to rapid declines in the French and German economies. France’s PMI collapsed to 11.2 in April, from 26 in March, and Germany’s PMI fell from 31 to 17.1.

“The latest flash manufacturing and services numbers from France show that manufacturing slowed from 43.2 to 31.5, however services absolutely cratered to a new eye wateringly record low of 10.4,” said Michael Hewson, chief market analyst at CMC Markets.

“Even taking the view that these PMI numbers offer little in the way of meaningful economic insight, 10.4 is still a shockingly bad number, and a new global record for any country ever.”

Eurozone-wide PMIs showed the lowest ever reading for the service sector, at 11.7. Services covers everything from banking and tax advisory to restaurants and bars, which have been forced to close to halt the spread of COVID-19.

European leaders are due to hold a virtual meeting later on Thursday to discuss how to finance a proposed European Recovery Fund that would help the bloc recover from the COVID-19 pandemic.

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