Purchasing managers‘ indices in the EMU: Downturn slows down, nothing more

The eurozone economy is still in recession in May as restrictions to contain the spread of the global coronavirus pandemic continue to weigh on the economy. Although sentiment among purchasing managers improved somewhat as a result of the gradual easing, a return to economic normality is not in sight. This is because the comprehensive composite purchasing managers‘ index of sentiment in industry and the service sector is still well below the neutral level of 50 index points at 30.5, compared with 13.6 points in the previous month.

According to IHS Markit, both sub-sectors – industry and services – contributed to the rise. Among the service providers particularly affected by the initial restrictions, the improvement in May was somewhat stronger. This is also reflected in the survey results among German and French purchasing managers. Overall, the improvement at an extremely low level is a first ray of hope. Nevertheless, the eurozone economy will shrink again in the second quarter, and more strongly than in the first quarter. We expect a minus of at least 9 percent compared to the previous quarter. The only hope that remains is that the recession will end in the second half of the year.

In Germany, the situation has improved somewhat after the catastrophic figures in April. Overall, the composite purchasing managers‘ index rose by 14 points to 31.4 points. According to IHS Markt, weakening incoming orders and falling production are leading to a downward correction of employment intentions. Fixed-term contracts in particular are not being extended and short-time work is being used more frequently. Without a significant increase in demand, the pressure on job cuts will continue.

In France, too, the mood among purchasing managers is improving, even though the comprehensive composite purchasing managers‘ index remains clearly in the red at 30.5 points, compared with 11.1 points previously. According to the survey results of IHS Markit, the French economy is still deep in recession in May.

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