Europe Heads For Double-Dip Downturn As Western World Succumbs

Surprise! The European economy looks poised to log another contraction, fresh off Q3’s rebound from the pandemic plunge.

The flash read on IHS Markit’s composite gauge for November dove to 45.1, after straddling the 50 demarcation line in October. Consensus was looking for 45.6.

On the bright side, it could have been (much) worse, or at least according to one of the 19 economists surveyed — the most pessimistic estimate was 35.

Manufacturing held up much better, indicative of the two-speed economy created by new lockdown measures across Europe. The preliminary read for November on the services gauge was 41.3. That’s worse than expectations and underscores the hit to activity from sweeping new COVID-19 containment protocols.

“The deteriorating performance was broad-based, albeit with the service sector hardest hit from virus containment measures,” IHS Markit said. “While manufacturing output growth merely slowed in November to the lowest since the start of the sector’s recovery back in July, service sector output fell for a third month running, with the rate of decline accelerating sharply to the fastest since May.”

Consensus is now looking for a contraction of some 2% in Q4. The European economy shrank nearly 12% in the second quarter, for context.

“When the main eurozone economies closed restaurants and bars and France, Belgium and Ireland closed non-essential retail, it was clear the economy would start to shrink again in Q4,” ING lamented on Monday. “The October data surveys were already weakening, but the November data is likely to fully capture the current partial lockdown the eurozone is going through.”

So far, Germany appears to be relatively stable. The composite PMI printed a better-than-expected 52 for November, and the services gauge avoided any kind of harrowing plunge, although it’s now well below 50. France is another story. The flash read on the services gauge there was 38 for November. That’s worse than consensus expected and the lowest reading since May.

If you want to put a positive spin on things, it’s at least possible. “Despite demand conditions deteriorating sharply, the pace of job cutting across the French private sector eased to the softest since before the escalation of the crisis in March,” IHS Markit economist Eliot Kerr mused. “This suggests that private sector firms have become leaner compared to the start of the crisis, and hopefully employee numbers will be more resilient to the current downside economic risks.”

Yes, hopefully. And if they aren’t, or if Europe succumbs to a sharper downturn than the relatively shallow contraction economists now expect, at least the bloc is more inclined to provide citizens with a safety net compared to the US, where many voters will be preparing Thanksgiving dinner this week with goods they obtained from a food bank, while performing the ritual “What I’m thankful for” pre-meal, pseudo-prayer over Zoom.


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