Europe: stronger than expected economic recovery

  •   24/06/2020 - 14h30
  •   DEHOUI Lionel

While Asia, America, Africa and some European countries are experiencing an increase in cases of contamination, the economic recovery is following its course in Europe. Indeed, deconfinement has led to a strong rebound in economic activity according to data from the Markit Institute, which sees an improvement in economic activity in June. This pleasant situation follows a spectacular fall in GDP in the euro zone. France stands out as the country most marked by the recovery.

Europe: stronger than expected economic recovery

The euro area on the road to growth

Indeed, the reopening of the private economic sector in Europe heralded the end of the historic plunge that this sector experienced during the health crisis. It should be remembered that this drop in economic activity had been caused by the containment measures adopted to prevent the spread of Covid-19. The IHS Markit provided some figures on the economic state of Europe in a note.

According to the firm, the end of the containment measures and their relaxation within the euro zone states have had a special impact. They were at the root of the sharp slowdown in the economic downturn in June. The improvement in the economic situation that began in May has thus continued, according to the firm's note on Tuesday. It should be remembered that the composite index reached an all-time low in April (13.6) before rebounding in May (31.9).

Note: In June, the composite index reached 47.5 in its rebound momentum. This is well above expectations.

 

Some analysis

The firm reported that activity within the euro zone nevertheless remained in contraction during the month of June. This rebound in the PMI index, which is very close to the 50 mark and which separates recession from expansion, is therefore not yet at its post-pandemic level. However, this is a sign of the renewed confidence in the region as a whole.

According to IHS Markit Chief Economist Chris Williamson, production and demand are not collapsing, although they continue to decline. In addition, GDP fell at an unprecedented rate in the second quarter. But the rise in the PMI index has reinforced expectations that deconfinement will stop the recession as the summer approaches. It is from this perspective that Chris sees the eurozone economy still in trouble.

Information: Jessica Hinds (economist at Capital Economics) confirmed that the GDP outcome will be less catastrophic than expected, even if the indicators say otherwise. According to them, the GDP result will be disastrous in the second quarter (Q2). On the other hand, Holger Schmieding of the Berenberg Bank is more optimistic, pointing out that the recovery is already taking effect in May, because during the previous two months, activity has experienced an unprecedented slowdown.

 

France is doing better than Germany

The Markit Institute claims that France would be growing in June. He sees the composite index informing on services and production reaching 51.3%. This exceeds all forecasts. The relative speed of deconfinement would be at the origin of this growth according to analysts. On the other hand, German activity remains in contraction with its index at 45.8.

The end of the recession is therefore more gradual in Germany because of the doubts linked to the coronavirus, which continue to weigh on demand. For Markit, the activity in factories and services has been able to get through the worst, even if it is not yet running at full speed. The comparison between France and Germany is very flattering for France. This should not happen according to Nicola Nobile (Oxford Economics).