Worst reading ever for Eurozone economy on harsh virus impact

Flags of the European Union flutter in front of the headquarters of the European Central Bank in Frankfurt am Main western Germany

Data compiler IHS Markit said its preliminary purchasing managers index (PMI) fell to 30.2 from 52.0 in February, far below economists' average forecast of 39.8 and even the lowest individual estimate of 36.0 in a Reuters poll.

"With additional measures to contain the spread of the virus set to further paralyse large parts of the economy in coming months, such as business closures and potential lockdowns, a recession of a scale we have not seen in modern history is looking increasingly likely", says Chris Williamson, Chief Business Economist at IHS Markit.

The UK composite PMI tumbled from a score of 53 to 37.1 in just a month but the closely watched survey was taken before the prime minister forced pubs, restaurants and shops to close to battle the coronavirus.

The Federal Reserve on Monday rolled out an extraordinary new array of programs aimed at softening the drag on the economy from COVID-19, backstopping an unprecedented range of credit for households, small businesses and major employers.

IHS Markit research shows the March survey reading is consistent with GDP falling at a quarterly rate of 1.5-2.0%, a decline which is sufficiently large to push the economy into a contraction in the first quarter.

In the eurozone - which includes Italy and Spain - manufacturing output slumped from 48.7 to nearly an 11-year low of 39.5. Record low (since July 1998).

The UK manufacturing PMI fell to a three-month low of 48 compared to 51.7 in March.

Eurozone bond markets, which have been trying to gauge the impact of the economic hit from the outbreak and a significant rise in expected issuance as governments step up to counter the slowdown with fiscal stimulus, showed little reaction to the data.

Mirroring the emptying of supermarket shelves around the world, indebted corporates have rushed into money markets to hoard dollars, with a global shortage of dollar funding threatening to cripple firms from airlines to retailers.

"But now it is all too believable, and April's data could be even worse". The likely postponement of the Tokyo Olympics is expected to deal a heavy blow to the world's third largest economy.

With most asset markets tanking, global central banks have been rolling out extraordinary measures on an nearly daily basis to stop the rot. "The domestic economy has been forced to a near-standstill by the efforts to contain the virus".

"For the USA economy to be able to come out of the current crisis and the ongoing recession relatively unscathed, more radical policy interventions will be needed in the next few weeks", said Anna Stupnytska, global head of macro and investment strategy at Fidelity International.

Goldman Sachs warned the US economy could contract by an annual rate of 24% in the second quarter, 2½ times greater than the previous biggest contraction, after World War Two.



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