The economic impact of the coronavirus resurgence in parts of Europe was laid bare on Monday by data which showed that fresh restrictions to control the spread of the virus had begun to choke off the recovery in the hardest hit country, Spain.
The decline in Spanish business sentiment data increases the chances that the eurozone economy will suffer a fresh downturn in the final months of this year, after rebounding from a historic recession caused by the onset of the pandemic in the first half of 2020, economists warned.
Spain’s IHS Markit purchasing managers’ index for the services sector — a widely watched measure of business sentiment — fell to a four-month low of 42.4 in September, down from 47.7 in the previous month. A reading below 50 indicates a majority of businesses reported deteriorating conditions compared with the previous month.
Spain’s performance dragged down the overall outlook across the single currency bloc: the final September reading for eurozone composite PMI — an average of services and manufacturing — slipped to a three-month low of 50.4. This was marginally up from the initial September estimate of 50.1 but down from August’s reading of 51.9.
“With the eurozone economy having almost stalled in September, the chances of a renewed downturn in the fourth quarter have clearly risen,” said Chris Williamson, chief business economist at IHS Markit.
By contrast Italy — which was the worst hit part of the eurozone in the early months of the pandemic — performed better than expected. Its services PMI increased to 48.8 in September, up from 47.1 in the previous month and better than the 46.6 forecast by economists polled by Reuters.
Data published last week for Italy’s manufacturing PMI suggested strong growth in the export-led sector.
Across the eurozone, economic activity was strongest in Germany which reported a final composite index of 54.7, better than initial estimates of 53.7, driven mainly by its behemoth manufacturing sector.
PMI figures published last week for Spain’s manufacturing sector showed it had also improved slightly to 50.8, up from August’s 49.9.
In France, which has experienced the second-largest resurgence in infections after Spain, the final composite PMI was confirmed as 48.5, a contraction driven by deteriorating conditions in its services sector.
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The PMIs indices “point to a two-speed-economy in which the upturn in manufacturing is gathering strength, mainly due to solid data in Germany, while services activity is now reeling”, said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.
The weakening in sentiment indicators suggested that “the idea of a sustained strong post-virus recovery at the end of the year is now seriously challenged”, he added.
Flash PMI estimates are released a week before the final estimates and generally include about 85 per cent of total survey responses.
The survey results came as official statistics showed a strong eurozone consumer recovery in August when restrictions were loosened, while household incomes were still supported by extensive national furlough schemes.
The volume of retail sales in the eurozone rose by 4.4 per cent in August compared with the previous month, according to Eurostat.
The reading was better than the 2.4 per cent expected by economists polled by Reuters, and up from a month-on-month contraction of 1.8 per cent in July.
Sales were boosted as customers switched from services such as gym membership to buying goods such as fitness tools. There was also a rebound in fashion spending, which had been hard hit in previous months, and strong internet purchases. August’s online sales volume was about 24 per cent above that of the same month last year.
All leading economies reported sales above last year’s level except in Spain where volumes were still 2.9 per cent down.
The retail sales figures “are almost too good to be true”, said Bert Colijn, senior economist at ING.
“With worries about unemployment rising and consumer confidence at historically low levels, current levels of spending cannot be maintained for more than a few months at best, and are likely to be reversed sooner,” he said.