The European economy is in absolute free fall.
That’s the message from April flash PMIs out Thursday.
The numbers are so bad – and so wide of consensus – that once this crisis is over, market participants may fairly reconsider whether these particularly types of economic indicators are rendered meaningless at the extremes (i.e., during obvious booms and outright busts).
The flash print on the Eurozone services PMI is 11.7. The composite gauge printed 13.5.
Again, it’s not clear whether there’s much informational value in that beyond the obvious, which is that the virus lockdown protocols have decimated the bloc’s economy. Consensus was looking for 25 on the composite gauge. New orders fell to 13.6.
“The COVID-19 pandemic was widely blamed for the deterioration, with April having seen an intensification of efforts to contain the virus outbreak across the continent”, IHS Markit says, stating the obvious. “Lockdown measures included widespread temporary business closures and draconian restrictions on citizens’ movement”.
“April saw unprecedented damage to the eurozone economy”, Chris Williamson, Chief Business Economist at IHS Markit remarked, in the accompanying color. He added this:
The extent to which the PMI survey has shown business to have collapsed across the eurozone greatly exceeds anything ever seen before in over 20 years of data collection. The ferocity of the slump has also surpassed that thought imaginable by most economists, the headline index falling far below consensus estimates. Our model which compares the PMI with GDP suggests that the April survey is indicative of the eurozone economy contracting at a quarterly rate of approximately 7.5%.
There you have it. These numbers are “unimaginable”.
Or at least they were. But we can all “imagine” them now, because they are right in front of us. The breakdown for the country-level services PMIs is egregious. In France, the flash read on the services PMI is 10.4.
IHS Markit acknowledges that this borders on the absurd.
“While PMI readings from March were shocking, looser restrictions at the beginning of that month meant that April data were always likely to be worse [but] the numbers recorded in the latest survey period are unprecedented”, economist Eliot Kerr said of the French survey. “The figures for output were by far the lowest on record, with the service sector business activity index barely making double-digits”.
Manufacturing gauges across the region were better, but still horrific. The flash prints there were all in the low 30s.
European leaders are set to debate a possible €2 trillion rescue package on Thursday. The debt sharing issue is still thorny, and one imagines countries with the capacity to do more fiscally will yet again feel the heat.
In the UK, the picture is broadly similar. The composite gauge came in at 12.9. That is just over a third of what it was in March (36).
There’s not a lot left to say about this, but CIPS Duncan Brock had some characteristically colorful (if dour) commentary on the UK data, which I’ll present below without further comment.
Though this significant and further deterioration from last month’s results came as no great surprise, it is no less devastating. Manufacturing output sometimes shrank into almost nothing as the pandemic’s grip took hold and factory closedowns at home and abroad made regular production schedules impossible. Supplier delivery times lengthened to an unprecedented extent. Some manufacturers commented on switching plant capacity to assist healthcare supply chains. Meanwhile, service providers ramped up their online operations to survive, but others just hit a dead stop, shedding jobs and facing extreme cash flow difficulties. “The overall services fall in output was faster than manufacturing and the steepest since records began in 1996 as social distancing measures enforced for the population stopped everything in its tracks and an eerie silence descended over the UK’s streets.
