The eurozone’s economic rebound from the coronavirus pandemic is losing steam after several months of improvement, according to a widely watched survey of business activity. The IHS Markit flash composite purchasing managers’ index for the bloc fell to 51.6 in August, down from 54.9 in July. Although a reading above the 50 mark indicates a majority of businesses reported an expansion in activity, the reading undershot the expectations of most economists, who on average had expected activity to plateau, according to a Reuters poll.
The disappointing data hit the euro in early trading on Friday and called into question the strength of Europe’s third-quarter economic recovery. After a historic contraction of more than 15 percent in the first two quarters of this year, economists widely expect the eurozone economy to rebound strongly in the third quarter.
However, the recent resurgence of coronavirus infections in many European countries to levels not seen since May has triggered fresh quarantine requirements and localized lockdowns, raising doubts over the sustainability of the recovery. “The recovery was undermined by signs of rising virus cases in various parts of the euro area, with renewed restrictions impacting the service sector in particular,” said Andrew Harker, economics director at IHS Markit, but he noted that “manufacturers continued to postmarked increases in output and new orders”.
He said company orders continued to rise in August, but the pace of growth slowed, while “companies in the eurozone continued to reduce their staffing levels” to reflect muted underlying demand and business confidence.