Worst reading ever for Eurozone economy on harsh virus impact

Andrew Cummings
March 24, 2020

"Particularly affected the services sector, especially in consumer-oriented industries like travel, tourism & restaurants", the message reads IHS Markit. That was an all-time low and followed 49.6 in February.

The Flash UK Composite Output Index - which gives a combined reading for the services and manufacturing sectors - for March read at 37.1, this is down from February's 53.0 and is a survey record low. GDP in the euro area's second-largest economy is "collapsing at an annualized rate approaching double digits", according to IHS economist Eliot Kerr.

Williamson said the rapid slowdown seen so far may prove to be just the "tip of the iceberg", with the government's measures to contain the virus taking a heavy toll on firms.

The Bank of England, in turn, has said it will buy a record 200 billion pounds of extra assets, mostly government debt, and cut its main interest rate to a record-low 0.1%.

Mirroring the emptying of supermarket shelves around the world, indebted corporates have rushed into money markets to hoard dollars, with a global shortage of greenback funding threatening to cripple firms from airlines to retailers.

Duncan Brock, Group Director at CIPS, said: "Just as the economy began to strengthen at the beginning of the year, the shock of this deepening global health crisis has flung businesses into the abyss, with the worst overall downturn in manufacturing and services for more than two decades".

It said "April's data could be even worse", predicting the eurozone's 2020 first-quarter GDP could plunge by at least three percent from the last three months of 2019.

The UK is on course for a recession of a scale "not seen in modern history" as the coronavirus outbreak has already dealt the economy an initial blow even greater than that seen during the last financial crisis.

Warnings about the depth of the slump having been coming nearly daily.

In its latest drastic step, the Federal Reserve on Monday promised bottomless dollar funding.

For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and "soon" will roll out a programme to get credit to small and medium-sized businesses. "The domestic economy has been forced to a near-standstill by the efforts to contain the virus". That helps us fund This Is Money, and keep it free to use.

Finance and monetary leaders from the world's 20 largest economies agreed on Monday to develop an "action plan" to respond to the pandemic that the IMF now expects to trigger a global recession, but offered no specifics. "Over the coming months, the PMI will be a crucial indicator in assessing the development of the effects of these policies on the economy".

"But it should be a more temporary one too", says Wishart.

Goldman Sachs warned the United States economy could contract by an annual rate of 24 percent in the second quarter, two and a half times greater than the previous biggest contraction, after World War II.

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