The world’s top economies took huge steps in recent months to recover from the worst recession in a generation. Now, with coronavirus cases surging again, that progress could be reversed.
What’s happening: Business activity has fallen back into decline in Europe, according to the latest reading of the Purchasing Managers’ Index from IHS Markit, which tracks the manufacturing and services sectors.
Earlier this week, both Spain and France — which are deep into the second wave of the pandemic — surpassed 1 million recorded coronavirus cases.
While manufacturing output powered ahead, Covid-19 fears triggered a fallback in services in France and elsewhere, with fresh restrictions once again slamming hospitality businesses.
Chris Williamson, chief business economist at IHS Markit, said the drop in activity is “far slighter” than what was observed between April and June. But he issued a stark warning on what could be coming down the pike for Europe.
“The eurozone is at increased risk of falling into a double-dip downturn,” Williamson said.
Big picture: Remember all the chatter about a recession that looked like a V or a Nike swoosh? A double-dip scenario looks more like a W, with an interim recovery quickly giving way to a painful retrenchment.
A warning: France’s finance minister said Friday that the country’s economy would likely contract between October and December.
“We’ll probably have a negative growth figure during the last quarter of the year,” Bruno Le Maire told Europe 1 radio, according to Reuters.
The latest PMI reading for the United Kingdom, which is also experiencing a growing crisis as infections mount, showed the weakest growth in activity in four months.
Barclays said Friday it believed the hit to the UK economy in 2020 would be worse than it expected at the end of June. It now expects the country’s output to shrink 10.3%, down from 8.7%.
The rapidly deteriorating situation is putting renewed pressure on policymakers to ramp up relief efforts. On Thursday, UK finance minister Rishi Sunak announced more generous support to protect jobs. The UK government will increase its wage subsidies to help businesses keep staff and also expand available grants.
Central banks, which have already deployed trillions of dollars, could also be called upon to step up to the plate again.
“The prospect of a slide back into recession will exert greater pressure on the [European Central Bank] to add more stimulus and for national governments to help cushion the impact of Covid-19 containment measures, which not only tightened across the region in October but look set to be stepped up further in November,” IHS Markit’s Williamson said.
Across the pond: It’s not just a European problem. US PMI data arrives later this morning, providing a snapshot of the economy as more than two dozen US states report rising Covid-19 cases.
Economists surveyed by Refinitiv expect both manufacturing and services activity to remain roughly flat compared to the previous month — a sign that the US recovery could be running into trouble, too.
