DUBLIN: Experts say the second wave of COVID-19 has disrupted economic activity in the Euro zone. They say the Euro zone economy is heading for a recession.
In the wake of the second wave, there are indications that the €750 billion stimulus package approved by the European Union in July to support a distressed economy will be delayed. It remains to be seen whether this will put the Euro zone countries in further crisis.
As the second wave of the corona virus spread across the continent, economic activity in the Euro zone fell sharply this month. The surveys also show that it increases the risk of a double-dip recession.
The revised restrictions, which came as part of Level 5, have forced many industries and businesses to limit their activities. Optimism in general has declined as infection rates and mortality have increased. The services business expectations index fell to 54.6 from 59.2.
According to a Reuters poll, 90% of economists believe that the resurgence of the corona virus could hamper the economic recovery of the new Euro zone. Eurozone PMI confirms that the second wave of the corona virus is putting more pressure on the economy. Bert Colijn at ING said there is a high probability of a double dip recession in the fourth quarter.
The IHS Markit’s Flash Composite Purchasing Managers’ Index, which is considered a good measure of financial health, fell to 49.4 from 50.4 in September. While it is less than predicted in the Reuters poll, it is worrying that growth is below the 50 mark.
The service industry PMI also fell to 46.2 from 48. All of these are the evidence that COVID’s second wave has hit the Euro zone economy- said Reynolds.
Today’s surveys showed the bloc’s economy is running at two speeds. The production benefits from strong global demand. At the same time, it is actively striving to provide services. German factories are operating earlier this month, echoing the divide between services and production. Meanwhile, economic activity in France, the Euro zone’s second-largest economy, has shrunk.
The UK economic recovery has also lost momentum as restrictions on businesses in the hospitality and transportation sectors outside the EU have taken effect.
European stocks rose 0.8% on their best day in five trading sessions. These strong results in the third quarter surpassed the survey data.
Concerns have been raised that the second wave could slow the labor market as well. The integrated employment sub-index is slightly higher but remains in the negative territory. At the same time, a Reuters poll showed that the unemployment rate would not rise for at least six months.
But experts say it is reassuring that Euro zone factories are performing better than expected. Flash Manufacturing PMI is at a 26-month high (54.4). This is much higher than predicted in the Reuters poll.
It is also encouraging that factories have been able to raise prices for the first time since mid-2019 due to strong demand for manufactured goods.
Experts say this will provide some relief to policymakers at the European Central Bank, which aims to bring inflation to 2%, which has been negative for two months.