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As Europe Wakes From Nightmare, Recovery To Be ‘Frustratingly Slow’

"... businesses that are able to restart will be running at low capacity, and will be operating in an environment of greatly reduced demand."

Final reads on Europe’s manufacturing PMIs highlighted the severity of the bloc’s economic slump on Monday, adding to the bad vibes from rising Sino-US tensions.

“The [data] is indicating an industrial sector that has collapsed at a quarterly rate of decline measured in double digits, and any recovery will be frustratingly slow”, IHS Markit’s chief business economist Chris Williamson warned. “Steps needed to keep workers safe will mean even businesses that are able to restart production will generally be running at low capacity, and most will be operating in an environment of greatly reduced demand”, he added.

The final print for the Eurozone manufacturing PMI in April is 33.4, down slightly from the flash read. It’s the lowest point in series history dating back to 1997.

Gauges for France and Italy also saw record lows last month, while Spain and Germany’s prints are the worst in more than a decade.

Italy, Spain, Greece, Portugal and Germany are all set to relax lockdown and containment protocols this week, but the “new normal” will be characterized by reminders of the virus’s capacity to resurface in the absence of caution. Masks will be worn, services will be subject to limits and, more generally, people will be wary of engaging with each other as they did pre-crisis. Things will not be the same.

“We will be lucky if we earn a quarter of what we used to”, a bartender in Rome told Bloomberg, for a piece that provides a glimpse into Europe’s tentative normalization process. Here’s a bit from Reuters along the same lines:

“I woke up at 5.30 a.m. I was so excited,” said Maria Antonietta Galluzzo, a grandmother taking her 3-year-old grandson for a walk in Rome’s Villa Borghese park — the first time they had seen each other in eight weeks.

The unkempt grass towered above the boy’s head and the air was full over the sound of lawnmowers as park staff began to restore some order to one of Italy’s most elegant gardens.

Under the new rules, 4.5 million Italians can clock back in, construction work can resume and relatives can reunite. More importantly for some, cafes were allowed to reopen for takeaways, with customers sipping their coffees on the pavement.

“This is my first proper coffee for eight weeks,” said Riccardo Monti, the CEO of an e-commerce company. “Perhaps it is the thing I missed most. The bar is the focal point of our social life so to see them closed was a trauma.”

Despite the months-long malaise, hope springs eternal, even among economists. “With virus curves flattening and talk now moving to lifting some of the pandemic restrictions, April will have hopefully represented the [worst] in terms of the virus impact on the economy”, Markit’s Williamson went on to say Monday. “Barring any second wave of infections, which would throw any recovery off course, the news should start to improve as we see more people and businesses get back to work”.

Deaths and infections in Spain are at a pre-lockdown nadir, while cases and fatalities in Germany are sitting near five-week lows.

Investor confidence, meanwhile, remains fragile. The Sentix gauge printed -41.8 for May, data out Monday showed. That was well worse than consensus, and barely better than April.

Expectations (which measures sentiment six months from now) came in at -3 compared to -15.8 in the prior month.

Last week, Europe reported the worst quarterly economic contraction since the inception of the single currency. The second quarter data will be far worse.

At this point, it all hangs on whether there’s a second virus wave, and, if there is, how bad it will be.

Read more: ‘Historic’ – Markets Marvel At Scope Of Europe’s Record Collapse On GDP Day

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