Euro zone contraction eased in May but still sharp: PMI

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(C) Reuters. FILE PHOTO: The spread of the coronavirus disease (COVID-19), in Fayetteville

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LONDON (Reuters) – The devastating impact of the coronavirus on the euro zone economy abated a little this month as some government-imposed lockdown measures introduced to contain the spread of the virus were eased, a survey showed.

Although cases of the virus — which has infected just over 5 million people and killed over 327,000 across the world — are still being reported, countries such as Germany and France have started to reopen parts of their economies.

Having crashed to what was by far its lowest reading in the survey’s nearly 22-year history last month, IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, recovered to 30.5 from April’s 13.6.

But while that was much better than the median expectation of 25.0 in a Reuters poll, it was still a long way from the 50 mark separating growth from contraction.

“The euro zone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April,” said Chris Williamson, chief business economist at IHS Markit.

“Second-quarter GDP is still likely to fall at an unprecedented rate, down by around 10% compared to the first quarter, but the rise in the PMI adds to expectations that the downturn should continue to moderate as lockdown restrictions are further lifted heading into the summer.”

A Reuters poll last week forecast an 11.3% contraction this quarter.

With citizens largely told to stay home, demand remained weak and the new business index came in at 28.4, up from April’s record low of 13.6.

The ongoing slump comes despite the European Central Bank pledging to buy more than 1 trillion euros in assets this year and governments outlining hundreds of billions in spending plans to support businesses and households.

There was an improvement in the battered services sector, which has borne the brunt of lockdown measures. The flash PMI for the bloc’s dominant service industry rose to 28.7 from 12.0, exceeding expectations in a Reuters poll for 25.0.

Meanwhile, a manufacturing PMI rose to 39.5 from 33.4, beating expectations for 38.0. An index measuring output almost doubled to 35.4 from 18.1.

Services firms cut prices for a third month, possibly giving the ECB room to offer more support. The output prices index remained sub-50 at 43.0 compared to last month’s 40.2.

With lockdowns easing — and infection rates in the region falling — factory purchasing managers were less pessimistic. The manufacturing future output index climbed to 45.0 from 36.6.