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Eurozone virus slump worse than hit from 2009 financial crisis

 

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The sun is pictured on the background of the almost empty Potsdamer Platz square in Berlin on March 24, 2020, amidst the new coronavirus COVID-19 pandemic. (Photo: Getty Images)

The sun is pictured on the background of the almost empty Potsdamer Platz square in Berlin on March 24, 2020, amidst the new coronavirus COVID-19 pandemic. (Photo: Getty Images)

AFP via Getty Images

The sun is pictured on the background of the almost empty Potsdamer Platz square in Berlin on March 24, 2020, amidst the new coronavirus COVID-19 pandemic. (Photo: Getty Images)

A key indicator for the eurozone's economy recorded its lowest ever reading in March as the coronavirus spread.

The result of the IHS Markit Purchasing Managers' Index survey made dark reading, at 31.4. The index reading was at its lowest level on record - worse even than in the depths of the financial crash - and fell from 51.6 in February.

"The eurozone economy suffered an unprecedented collapse in business activity in March as the coronavirus outbreak intensified," IHS Markit said.

"The March PMI is indicative of GDP slumping at a quarterly rate of around 2pc, and clearly there's scope for the downturn to intensify further as even more draconian policies to deal with the virus are potentially implemented in coming months," said Chris Williamson, chief business economist.

Across the eurozone, businesses are shuttered, schools are closed and some countries like Italy have introduced draconian restrictions on movement in a bid to curtail the spread of the virus.

The prior low in the index was seen in February 2009, when it hit 36.2.

A reading below 50 indicates a contraction while one above 50 shows an expansion.

The index does not actually tell you by how much the economies are set to contract as it is a survey of sentiment, but it does indicate the direction of travel.

"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," said Jack Allen-Reynolds, senior Europe economist at Capital Economics.

Mr Allen-Reynolds estimated the fall in economic output in the first quarter versus the prior quarter at 3pc.

The employment sub-index fell to its lowest level since July 2009 as companies laid off workers. That presents the risk of a sharp downward spiral for economies and the prospect of a slow recovery if redundant workers do not return to work soon.

Governments across the world, including here, have stepped up wage subsidies in response, as well as unveiling large budget packages that are backed up by massive infusions of cash from central banks.

Similar declines were reported in the US PMI data, which recorded its biggest fall since the series started in 2009 as the outlook for the world's largest economy darkened.

Federal Reserve Bank of St Louis president James Bullard predicted this week that the US unemployment rate may hit 30pc in the second quarter and that gross domestic product could fall by as much as one half.

Those projections are much larger than any others and, if they come true, would be a major blow to the economy here which is highly geared to that of the United States thanks to the presence of a large number of multinational companies here.

Irish Independent


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