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Coronavirus outbreak leads to largest collapse in euro zone business activity ever recorded

An employee of the municipal company Veritas sprays disinfectant in public areas at the Rialto Bridge in Venice on March 11, 2020.

MARCO SABADIN

The euro zone economy suffered an “unprecedented collapse” in business activity in March as the coronavirus outbreak intensified, according to provisional purchasing manager’s index (PMI) survey data from IHS Markit.

The data, released Tuesday, showed that the “flash” euro zone composite PMI collapsed from 51.6 in February to 31.4 in March. The survey measures business activity in the services and manufacturing sector in the 19-member euro zone.  

This is the largest monthly fall in business activity since comparable data were first collected in July 1998. The prior low was seen in February 2009, when the index hit 36.2.

The reading on Tuesday was below all forecasts in a Reuters poll which had a median prediction of 38.8.  The 50-point mark separates expansion from contraction territory.

While growth had accelerated modestly in the first two months of the year, IHS Markit noted, March saw widespread disruptions to business from strict measures to contain the spread of the coronavirus outbreak. Increasingly stringent lockdowns across Europe saw hotels, cafes and restaurants closed, hitting the travel and tourism industry hard.

The survey’s service sector business activity index slumped just over 24 points from 52.6 in February to 28.4 in March, surpassing the survey’s February 2009 low of 39.2.

“Business activity across the euro zone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis,” Chris Williamson, chief business economist at IHS Markit, said in the latest report.

“Steep downturns were seen in France, Germany and across the rest of the euro area as governments took increasingly tough measures to contain the spread of the coronavirus.”

He added that the March PMI is indicative of euro zone gross domestic product (GDP) slumping at a quarterly rate of around 2%, “and clearly there’s scope for the downturn to intensify further,” Williamson added.

Other analysts said the data do not bode well for the months ahead.

“March’s slump in the euro-zone Composite PMI is so sharp that at any other time it would look like a spreadsheet error. But now it is all too believable, and April’s data could be even worse,” Jack Allen-Reynolds, senior Europe economist at Capital Economics, noted Tuesday.

Given that survey responses were collected between March 12 and 23, before some of the lockdown measures had been implemented, the data for April will be far worse, he noted.

Euro-zone finance ministers are meeting Tuesday evening, via video conference, to discuss a possible coordinated fiscal response to the crisis.

“They might not agree anything concrete today, but any progress would be helpful. Even if they do reach an agreement, it will do nothing to shore up aggregate demand while much of the economy is on lockdown. But it could help the economy to recover once those restrictions are eventually relaxed,” Allen-Reynolds said.

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