Europe's coronavirus lockdown pushes economy into record slump

The euro zone economy's purchasing managers index dived to a record low of 13.5 in April 2020.
The euro zone economy's purchasing managers index dived to a record low of 13.5 in April 2020.PHOTO: REUTERS

BRUSSELS (BLOOMBERG) - Europe's economy suffered a massive blow in April when government restrictions to contain the coronavirus left companies scrambling to stay afloat.

An estimate of private-sector activity in the euro area plunged to just 13.5 from 29.7 in March, IHS Markit said on Thursday (April 23). The drop was far sharper than economists had anticipated and marks the lowest reading for the Purchasing Managers' Index since it began more than two decades ago.

The report is a grim preview for European leaders, who will discuss a possible 2 trillion-euro (S$3.1 trillion) rescue plan for the region on Thursday. Governments have already pledged billions of euros in aid, and the European Central Bank on Wednesday stepped up its efforts to shield the most vulnerable countries.

The PMI echoes other surveys that suggest Europe, and the global economy, are heading for a sharp recession because of government clampdowns on movement and business. The IMF says the slump could be the steepest in almost a century and forecasts the euro area could shrink 7.5% this year.

With huge parts of the region's economy effectively shut down, new business in both manufacturing and services fell at a record pace in April, IHS Markit said. The latter bore the brunt, reflecting the hit to the leisure industry, airlines, restaurants and hotels.

Figures for Germany and France, the euro region's two biggest economies, also pointed to unprecedented slumps at the start of the second quarter.

The euro zone survey showed another decline in confidence, as well as record job cuts. Some of the employment decline reflects furloughed workers, though if the situation persists, companies may be forced to actually lay them off.

Some governments have begun to ease restrictions, slowly reopening their economies to help companies and employees brutally squeezed by the shutdown. But countries are aware that they don't have the all clear on the virus, so it's far from returning to business-as-usual.

"Hopes are pinned on containment measures being slowly lifted to help ease the paralysis," said Chris Williamson, chief business economists at IHS Markit. "However, progress looks set to be painfully slow to prevent a second wave of infections. In the face of such a prolonged slump in demand, job losses could intensify from the current record pace and new fears will be raised as to the economic cost of containing the virus."