Daily Management Review

Euro Zone’s July Businesses Activity Indicates A Rebound From Pandemic Induced Recession


Euro Zone’s July Businesses Activity Indicates A Rebound From Pandemic Induced Recession
There was a growth in business activity in the euro zone in July which marked the first such growth since the region was hit severely by the novel coronavirus pandemic. This was driven by the gradual reopening of many economies that were under lockdown to prevent the spread of thee pandemic and as people got a chance to get out of their homes to work and to spend money.
More than 15.5 million people have been infected globally by the virus. However various governments across Europe have started to open up their economies and relax some restrictions with the easing of the rate of infections across much of Europe.
The IHS Markit's flash Composite Purchasing Managers' Index (PMI), viewed by economists as one of the most dependable indicators of economic health for the region, reached 54.8 in July from June's final reading of 48.5 because of the unleashing of demand that had a pent-up during the lockdown period. The July PMI number was the highest for the region since mid-2018 and comfortably beat analysts’ expectations of 51.1 value.
"The sharp rise... is an encouraging sign that the economic recovery continued at a decent pace. But we suspect that activity will remain below pre-crisis levels for at least the next couple of years," said Jack Allen-Reynolds at Capital Economics.
The separation of growth from contraction is marked by the 50 mark in the headline index and this index was below that mark since March this year. This index also returned back into the positive in July marketing growth.
These positive economic indicators will be good news for policymakers and governments of the European Union ho had declared a record coronavirus pandemic rescue package for the region just a few days ago.
On Tuesday, a 750 billion euro pandemic recovery fund was agreed upon by European Union leaders. And together with the retaining of its ultra-loose monetary policy for longer by the European Central Bank, there has been an improvement in the optimism about the rest of he current year.  
But despite the markets and some economists expecting a V-shaped economic recovery, the data released on Friday was unlikely to support those views even though the data surely indicates a bounce back.  
"A V-shaped recovery seems quite unrealistic, despite the encouraging numbers," said Bert Colijn at ING.
The PMI data showed a rebound in French business activity to levels that were more than expected as a post-lockdown recovery in the service sector. Data also showed stabilization of manufacturing activity in Germany as manufacturers managed to narrowly avoid a contraction after 19 straight months. That has raised hopes of a recovery after a long recession because of the pandemic.
And with the growth in demand, the pace of job cuts by euro zone firms has also slowed down while the optimism among purchasing managers as the highest since February, the month prior to the economic impact of the pandemic was felt across Europe.