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Eurozone business activity plunges as lockdowns bite

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
·3-min read
This aerial view shows the blast furnace Schwelgern at the plant of German industrial conglomerate ThyssenKrupp in Duisburg, western Germany, on November 18, 2020. - ThyssenKrupp will broadcast the annual press conference live via audio streaming on November 19, 2020 with presentations by CEO Martina Merz and CFO Klaus Keysberg. (Photo by Ina FASSBENDER / AFP) (Photo by INA FASSBENDER/AFP via Getty Images)
This aerial view shows the blast furnace at the plant of German industrial conglomerate ThyssenKrupp in Duisburg, Germany, on November 18, 2020. Photo:I na Fassbender/ AFP via Getty Images

Business activity in the 19-country eurozone declined significantly in November as a strong second wave of the coronavirus swept across Europe, and many countries were forced to impose tighter restrictions on business and social life.

IHS Markit’s Purchasing Managers Index (PMI) Composite Output Index came in at a six-month low of 45.1 in November, down from 50.0 in October. Its Flash Eurozone Services PMI was 41.3, from 46.9 in October, also at a six-month low. The Eurozone Manufacturing PMI Output Index showed 55.5, from 58.4 in October.

Any reading above 50 signals growth.

“The eurozone economy has plunged back into a severe decline in November amid renewed efforts to quash the rising tide of COVID-19 infections,” Chris Williamson, chief business economist at IHS Markit said in a statement. “The service sector has once again been the hardest hit. The factory sector nevertheless remains something of a bright spot, with factories in Germany continuing to show especially encouraging resilience, led by a further surge in demand.”

Williamson added that the “further downturn of the economy signalled for the fourth quarter represents a major set-back to the region’s health and extends the recovery period. After a 7.4% contraction of GDP in 2020, we are expecting only a 3.7% expansion in 2021.”

In Germany, Europe’s largest economy, the PMI index fell to a five-month low in November. The PMI Composite Output Index reading was 52.0, down from 55.0 in October.

Service-sector business activity, at 46.2, contracted for the second month in a row in November, as the country’s month-long closure of restaurants, bars, entertainment and sports venues began to take its toll.

However, the manufacturing sector—which came in at 57.9 — is providing ballast for the economy. IHS Markit notes that German business activity “remained comfortably above its level in the second quarter of the year” during the initial lockdown phase.

“As expected, the introduction of new lockdown measures in November to combat the spread of COVID-19 has had a disruptive impact on German economic activity, with the flash PMI data showing the service sector suffering its worst performance since May,” Phil Smith, Associate Director at IHS Markit said in a statement.

READ MORE: Positive vaccine news boosts European stock markets

“However, the resilience being exhibited by the manufacturing sector, which the survey shows is benefitting for growing sales to Asia in particular, supports our view that any downturn in the final quarter is expected to be far shallower than those seen in the first half of the year,” Smith said.

In France, IHS Markit’s flash composite PMI data showed a sharper contraction in French business activity during November, with private sector activity falling at the fastest pace since May when the country had similar lockdown restrictions to now.

The French composite output index fell to a six-month low of 39.9 in November, down from 47.5 in October.

“In line with the trend for output, new orders received by French businesses fell markedly in November, with the pace of decline accelerating to the fastest for six months,” IHS Markit said in its report.

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