Euro zone business activity recession

What is happening?

Economic activity in service sector in the Euro zone and the UK is on its lowest rates since 2009.

How do we now that?

On Tuesday leading indicators of economic health in France, Germany and UK were released – French, German and UK Flash Services PMI. The numbers are disappointing as they came out below the expected level. At the same time, manufacturing industries were actually doing better than economists had predicted.

These indicators show how purchasing managers assess business conditions today. With people in France, Spain and Italy confined to their homes, travel plans being abandoned, with restaurants and other entertainment places being shut down, there is no surprise that service sector is struggling today.

What does it mean?

These indicators gave a first signal that euro zone economy is tilting to recession. Governments have started to guarantee loans for small companies, help those who lose their jobs, and boost spending. However, the European lockdowns will leave a 350 billion-euro hole in household incomes and company profits.

The threat is that if the containment measures are needed a long time, the euro area will collapse. The UK economy will contract by at least 10% in the first half of the year, according to Bloomberg Economics’ estimates. The economy in euro area is forecast to shrink 3.1% in first quarter, with another blow of 2.4% in the second.

The future of euro-area economy mostly depends on the measures that governments will take. That is why right now it is quite necessary to get updated not to miss fresh news that might influence the market.

The ECB and the EUR

The European Central Bank makes all efforts to cope with the extraordinary shock that stunned the market. For this reason, it scrapped most of the bond-buying limits in its 750 billion-euro ($819 billion) pandemic emergency program.

This program will continue all this year and will also allow the ECB to buy bonds with shorter maturities.

The long-term perspective of euro will depend on its effectiveness of every member of euro zone. We will monitor the situation closely and keep you updated as always.

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Kseniia Medik

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