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Latest PMI data points to major European recession

By Lawrence Gash

IHS Markit warns of a UK recession 'of a scale we have not seen in modern history'

The coronavirus outbreak has set the United Kingdom and the eurozone on the path of a substantial recession, according to the latest data from IHS Markit.

The data firm’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), often a reliable gauge of the economic health of 37 countries using the euro (EUR), plunged by from 51.6 points in February to 31.4 in March.

This constituted the largest crash in eurozone business activity on record and was far below the average analyst forecasts of 39.8. With any score under 50 indicating a contraction, it is clear that the economic impact of Covid-19 will be felt long after the actual virus outbreak ends.

Despite more than €750bn (£690bn, $810bn) in stimulus from and the resumption of quantitative easing by the European Central Bank (ECB) along with the efforts of individual governments to bolster euro zone economies, business activity across the political and economic area collapsed.

As IHS Markit’s chief business economist, Chris Williamson, stated: “Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the financial crisis.”

German private sector PMI plummeted from 50.7 last month to 37.2 in March, with its service sector plunging to a record-low. Such marked declines in the economic powerhouse of the eurozone will only strengthen fears of a prolonged recession.

Only yesterday (March 23), the Organisation for Economic Co-operation and Development (OECD) dismissed hopes of a V-shaped recovery in the world’s leading economies and warned instead of a U-shaped extended recessionary period.

The economic impact of Covid-19 has been just as profound outside the eurozone, with IHS Markit’s UK PMI survey recording its worst reading in its 22-year history. According to the firm, the British economy is set to contract at its fastest rate during this millennium, falling from 53.0 in February to 37.1 in March.

Remarking on the ongoing situation in the UK, Chris Williamson said: “With additional measures to contain the spread of the virus set to further paralyse large parts of the economy in the coming months, such as business closures and potential lockdowns, a recession of a scale we have not seen in modern history is looking increasingly likely.”

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