Euro zone at risk of double-dip recession

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    LONDON – Euro zone economic activity slipped back into decline this month as a second wave of the coronavirus sweeps across the continent, heightening expectations for a double-dip recession, surveys showed.

    Renewed restrictions to control the pandemic forced many businesses in the bloc’s dominant service industry to limit operations, and nearly 90 percent of economists polled by Reuters this week said there was a high risk the coronavirus resurgence would halt the nascent euro zone economic recovery.

    “The euro zone PMI confirms that the second wave of the coronavirus is weighing more and more on the economy. A double-dip in the fourth quarter is becoming more likely at this rate,” said Bert Colijn at ING.

    IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a good gauge of economic health, fell to 49.4 from September’s final reading of 50.4.

    That was below the 50-mark separating growth from contraction and only fractionally better than the 49.3 predicted in a Reuters poll.

    That headline PMI was dragged down by the service industry’s PMI, which sank more than expected to 46.2 from 48.0.

    “The further decline in the euro zone Composite PMI in October adds to the evidence that the second wave of infections, and the new wave of containment measures, is taking a heavy toll on the economy,” said Jack Allen-Reynolds at Capital Economics.

    Friday’s surveys showed the bloc’s economy is running at two speeds, with manufacturing benefiting from strong global demand but services – which make up the bulk of the economy – struggling to remain active as lockdowns force consumers to stay home and businesses to close.

    In contrast, in China – where the economy relies much more heavily on manufacturing and where the pandemic is largely under control – the recovery accelerated last quarter as consumers shook off their caution.

    Echoing the divide between services and manufacturing, German factories powered ahead this month, while in France activity contracted as a resurgence of the virus hit the euro zone’s second-biggest economy. —Reuters