Daily Management Review

Sharp Shrinkage In Euro Zone Business Activity In November: PMI


Sharp Shrinkage In Euro Zone Business Activity In November: PMI
With government across the European Union and other parts of the euro zone reimposing strict lockdown measures in their efforts to try and stop the spreading of a second wave of the novel coronavirus pandemic, there was a sharp contraction in economic and business activity in the euro zone last month according to the results of a survey published on Thursday.
There will again be a contraction in the economy of the EU in the current quarter according to the estimates of experts. However, the increasing hopes of multiple Covid-129 vaccines that will stop the pandemic and additional support from the European Central Bank have prompted economists and analysts to upgrade growth forecasts for next year.
In November this year, the IHS Markit's composite PMI which is considered to be a good guide to gauge economic health of a region, dropped to 45.3 compared to the value being at 50.0 in the month of October. It is considered that any value below 50 is considered to be a contraction. The November number was however above an earlier flash reading of 45.1.
"The euro zone economy slipped back into a downturn in November as governments stepped up the fight against COVID-19, with business activity hit once again by new restrictions to fight off second waves of virus infections," said Chris Williamson, chief business economist at IHS Markit.
A PMI that tracks the dominant services industry of the euro zone dropped to 41.7 in November compared to its value of 46.9 in the month of October which marked the straight third month that the PMI was below the breakeven point between contraction and growth. The reading was also the lowest since May – a time when the entire Europe was being swept awash by the first wave of the novel coronavirus pandemic.
There was a slump in demand in November as hospitality venues were forced to close because of the lockdown and other restrictive measures while shops were also shut down and citizens were encouraged to stay back at home. The services new business index fell to 40.6 from 45.7.
But for the coming year, there was an improvement in the overall optimism of the EU and the composite future output index increase to 60.4 in November from 56.5 in the previous month.
"Encouragingly, growth expectations have lifted higher, as vaccine developments fuel optimism that life can start to return to normal in 2021," Williamson said