Global Economies Show Signs of Stuttering Recovery From Lockdowns

A worker at at a gear cutting tools manufacturer in Italy. The slowdown in Europe comes as infections are again surging.

Photo: massimo pinca/Reuters

Europe’s economic recovery slowed in August while Japan saw another drop in activity, an indication that the return to pre-pandemic levels of global output is likely to be slow and uneven for as long as fresh outbreaks of the novel coronavirus continue to threaten.

Economies around the world saw record contractions in the three months through June as governments imposed lockdowns and consumers stayed at home in an effort to contain the pandemic.

With many of those restrictions having been lifted as the second quarter drew to a close, economists expect to see a big rebound in activity during the three months through September.

However, surveys of purchasing managers at businesses in Europe and Japan released Friday suggest that the rebound may be smaller than hoped for, with disrupted international trade flows and weak demand for services that require close physical proximity holding back the recovery.

Data firm IHS Markit said its eurozone composite purchasing managers index—a measure of manufacturing and service-sector activity—fell to 51.6 from 54.9 in July, indicating that activity increased at a slower pace than in the previous month. A level below 50.0 points to a decline in activity from the previous month, while a reading above that threshold points to an increase.

The results of similar surveys of the U.S. will be released later Friday, and are also expected to point to a slowing rebound.

In recent years, purchasing managers indexes have become important indicators of where the global economy might be heading. But in the current slowdown, where small businesses were some of the hardest hit, PMI numbers may not be telling the full story. WSJ explains. Photo: Getty Images

The slowdown in Europe comes as infections are again surging and governments are racing to prevent a full-fledged second wave of the pandemic. That resurgence in the virus has hit the services sector particularly hard, including the tourism industry at what is usually its busiest time of the year.

“The recovery was undermined by signs of rising virus cases in various parts of the euro area, with renewed restrictions impacting the service sector in particular,” said Andrew Harker, an economist at IHS Markit.

While the number of people infected by the virus in Europe has risen over recent weeks, those affected have been much younger on average than during the first wave, and hospitalizations have been much lower. According to economists, that makes it less likely that governments will revert to widespread lockdowns, which would likely send the eurozone economy back into contraction.

“For the economy, these are arguably the most important metrics as it is the fear of hospitals being unable to cope which pushed governments into drastic measures first time around.” Andrew Kenningham, Capital Economics.

Health experts say policy makers now know more about how the virus is transmitted, and have improved testing and tracing systems that allow for more localized responses to outbreaks.

“We’re not back in February. We know how to target the virus, rather than targeting society,” said Hans Kluge, the World Health Organization’s regional director for Europe.

However, the surveys of purchasing managers show that even without broad lockdowns, fresh outbreaks of the virus can have a significant impact on economic growth.

In contrast to the services sector, some of Europe’s factories reported another month of strong growth in August, with German businesses citing a pickup in orders from China. However, their French counterparts didn’t have the same experience, with output growth slowing sharply.

The eurozone’s economy contracted more sharply than the U.S. in the second quarter, an indication that lockdowns were more restrictive and longer-lasting. Eurozone policy makers had hoped that by getting a firmer grip on the virus, the currency area’s economy would see a stronger rebound during the remainder of the year and into 2021. If the surveys are backed up by other data in recording a slower expansion than was expected, the European Central Bank is more likely to provide additional stimulus in the coming months.


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Japan’s economy contracted less sharply than those of the U.S. and the eurozone in the second quarter, but that was partly because output had already started to fall in the final three months of 2019.

The survey of purchasing managers carried out by IHS Markit indicated that the country’s economy will be slow to return to significant growth, with the composite PMI unchanged at 44.9 in August.

“The second virus wave has brought the recovery to a standstill, but won’t cause a renewed downturn,” said Marcel Thieliant, an economist at Capital Economics.

The U.K. was the main exception to the August slowdown in Europe, with its composite PMI rising to 60.3 from 57.0 in July, pointing to the most rapid expansion in almost seven years. However, the U.K.’s lockdown was lifted later than in other parts of the continent, with the economy having contracted more sharply than elsewhere during the second quarter.

Write to Paul Hannon at [email protected]

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