Economic activity in the Eurozone shrinks again as the second wave of the Covid virus rushes

A Paris bar worker swept away after closing early to comply with new Covid-19 restrictions.

Kieran Ridley | Getty Images News | Getty Images

Preliminary data on Friday showed economic activity in the euro zone contracted in October as coronavirus restrictions return to the region.

The Eurozone PMI composite production index, which looks at activity in the manufacturing and services sectors, fell to its lowest level in four months in October to 49.4, from 50.4 in September. A reading below 50 represents a contraction of activity.

The latest figures showed that manufacturing has remained somewhat resilient over the past month, but activity in services has fallen to its lowest level in five months.

“The euro area is at increased risk of falling into a double-dip downturn as the second wave of virus infections led to a renewed decline in business activity in October,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

He added that the data “revealed a story of two economies, where manufacturers are enjoying the fastest growth since early 2018 … But intensifying Covid-19 restrictions has increasingly affected the services sector.”

New restrictions

German variation

The German Composite Output Index reached 54.5 in October due to the importance of the manufacturing industry to the overall economy.

“The difference is more pronounced in terms of country. While Germany has been supported by a boom in its manufacturing sector to the point where it has only grown more than twice in nearly 25 years of the survey history, the rest of the region has plunged into a deep recession,” said Williamson.

The challenges facing the eurozone in the wake of the pandemic are putting additional pressure on the European Central Bank. Economists believe that more monetary stimulus is on the way before the end of the year.

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