Eurozone business activity collapses in March due to Covid-19

Eurozone business activity collapsed in March amid the escalating coronavirus crisis, according to data released on Tuesday.

IHS Markit’s flash eurozone composite output index - which measures both the services and manufacturing sectors - slumped to 31.4 from 51.6 in February. This was the lowest level since records began in July 1998. Economists had been expecting a reading of 38.8.

A figure below 50.0 indicates contraction, while a figure above signals expansion.

The manufacturing PMI fell to 44.8 from 49.2 and the services PMI slid to 28.4 in March from 52.6 the month before. Economists had been expecting a reading of 39.0 for both.

The survey found that there had been "widespread disruptions" to business in March from increasingly strict measures to contain the spread of the coronavirus outbreak, with the services sector especially hard hit, particularly within consumer-facing industries such as travel, tourism and restaurants.

Chris Williamson, chief business economist at IHS Markit, said: "Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis.

"Steep downturns were seen in France, Germany and across the rest of the euro area as governments took increasingly tough measures to contain the spread of the coronavirus.

"The March PMI is indicative of GDP slumping at a quarterly rate of around 2%, and clearly there’s scope for the downturn to intensify further as even more draconian policies to deal with the virus are potentially implemented in coming months.

"Demand for many goods and services has fallen dramatically, while near-record supply chain delays have stymied production and business closures mean an increasingly large proportion of the economy is being mothballed."

Capital Economics said the slump in the eurozone composite PMI "is so sharp that at any other time it would look like a spreadsheet error".

"But now it is all too believable, and April’s data could be even worse."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said markets were well prepared for the "horrible" data.

"We’re also confident that very bad headlines for April are priced-in,” he said. “Looking beyond that, we suspect that the consensus is now eyeing a gradual improvement starting at some point in Q2. In other words, the crash in itself not an issue for markets at this point, but signs that the slump will linger beyond Q2 would be bad news.

"This will depend on the politics of maintaining very severe lockdowns, which, in turn, will reflect how effective the measures taken so far are in curbing the virus. We hope that this misery will be confined to H1, but we’re taking one step at the time at the moment."