Service sector activity crashed across Europe in March as coronavirus lockdowns caused a series of widely watched business surveys to record their largest-ever monthly falls to levels that suggest a severe economic contraction is under way.
None of the leading European economies was immune to the economic pain. Italy’s purchasing managers’ index fell to levels far below the worst point in the financial crisis 11 years ago. Spain, France and Germany all recorded the lowest reading in their respective surveys since they started more than 20 years ago.
For the eurozone as a whole, the composite PMI index of services and manufacturing, compiled by IHS Markit, dropped from a reading of 51.6 in February to only 29.7 in March, the lowest reading since the survey began 22 years ago. Any level below 50 indicates that a majority of companies said activity in their businesses had declined over the past month.
Paul Smith, economics director at IHS Markit, said: “The March survey laid bare the scale of the Covid-19 pandemic and associated effort to contain the outbreak, with services companies registering unprecedented falls in activity, new work and confidence.”
Nicola Nobile of Oxford Economics said the economies in the bloc faced an “extremely challenging situation”, highlighting the need for a rapid co-ordinated policy response across the eurozone.
Outside the eurozone, data from the UK painted the same picture; its index fell from 53.2 to 34.5.
Even in Sweden, service sector activity was hit almost as hard as in other European countries, but from a higher base, falling from 56.9 to 36.8 with big hits to consumption, leisure and travel. Lisa Alexanderson, senior economist at JPMorgan, said the “hit to activity is thus as large as elsewhere despite less draconian restrictions in Sweden”, suggesting the economic consequences of the virus cannot be avoided even if governments allow the virus to spread more freely.
The plunge in the indices suggested economies would contract faster in the second quarter of 2020 than they did in the financial crisis of 2008-09.
Jack Allen-Reynolds at Capital Economics said “while lockdowns are in place, output in the eurozone will be at least 25 per cent below its normal level”, indicating in 2020 as a whole “we think that gross domestic product will fall by about 9 per cent”.
The Italian figures were the worst with a headline services activity reading of 17.4, a plunge that IHS Markit said was “likely to be felt for a long time to come”.
It also marked the steepest contraction registered by IHS Markit across any other country so far in the crisis. Italy’s companies reported the fastest contraction in new business on record, and they expect activity to fall further in the year ahead. The rate of job losses was the quickest since April 2009.
Italy was the first European country to enter a strict lockdown, but other large European economies have been hit almost as hard.
In France the services PMI fell to 27.4 in March from 52.5 in February. Germany saw an equivalent decline in its index from 52.5 to 31.7 and Spain suffered a drop from 52.1 to 23.0.
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In Britain, the drop in activity accelerated during March and by the end of the month was below the level of the financial crisis.
Samuel Tombs, UK economist at Pantheon Macroeconomics, said the data towards the end of the month was much worse than at the beginning, suggesting April’s numbers would be even worse. The figures, he said, were “horrendous and probably not reflecting the full devastation” in the UK economy to come in the months ahead.
No country is immune from the economic damage. On Friday the chief economist of Ireland’s central bank predicted unemployment was on track to rise to 25 per cent by the summer. Mark Cassidy said near-term prospects for the largely services-driven Irish economy were “very unfavourable”.
Additional reporting by Arthur Beesley in Dublin
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