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Five Economic Charts to Watch: Europe (COVID-19 Edition)

Coronavirus   |   Economics

By Sara B. Potter, CFA  |  April 13, 2020

Europe has been hit hard by the rapid global spread of the COVID-19 novel coronavirus, with many countries under lockdown for the last several weeks. With businesses shuttered and residents staying home, we know that the economic impact will be severe. However, due to the lag in official economic statistics, our ability to measure the economic impact is delayed. Let’s consider what European data we currently have, what is still coming in, and the current growth forecasts.

Negative GDP Growth Forecasts for 2020

As economists struggle to quantify the economic impact of the strict lockdown measures instituted to slow the spread of the virus, the forecasts are growing grimmer by the day. As shown in the chart below, things look bleak for Europe’s largest economies. As an early epicenter of the virus, Italy is expected to suffer most, with a current median real GDP growth forecast of -6.5% in 2020. The Italian economy had already stalled in 2019, growing just 0.3% for the year, the slowest economic expansion in all of Europe.

Europe GDP forecasts

Eurozone Services Sector Collapses

Just five months ago, we were concerned about the impact on Eurozone’s export-intensive manufacturing sector from increased global trade tensions, a slowdown in global demand, and Brexit. However, as shown in the chart below, now it is the services sector that is dragging down economic sentiment. Purchasing manager index (PMI) readings for the Eurozone declined in March for both manufacturing and services, but the services PMI fell to a record low in the nearly 22-year history of the series. The services PMI fell from 52.6 in February to 26.4 in March; at the same time, the manufacturing PMI dipped further into contraction territory, falling from 49.2 in February to 44.5 in March. These two declines led to a sharp decline in the composite PMI, which fell from 51.6 in February to 29.7 in March, a new low for this indicator as well. A PMI reading above 50 indicates expansion while a reading below 50 indicates contraction.

Europe Composite PMI

Weak Export Outlook for German Auto Industry

According to the March IFO business survey, German auto manufacturers’ expectations for exports in the next three months plummeted to -42.7 from -17.3 in February. This is the lowest reading since 2009 and the biggest one-month drop in sentiment since December 2008. In February, export pessimism was largely focused on the impact of the coronavirus on Chinese demand for German autos. But with German automakers announcing production cuts across Europe in March and demand plummeting worldwide, export prospects look increasingly dismal.

IFO auto industry 3 month export expectations

United Kingdom Retail Sector Weakens as Shutdown Takes Hold

With all non-essential shops ordered closed in the UK in late March, retail sentiment has turned negative and is likely to worsen. According to Eurostat, the survey of expected business conditions for retailers fell to -23.9 in March, its lowest level since November 2011. Even before the impact of the coronavirus spread to Europe, we saw an unexpected 0.3% month-over-month decline in retail sales in February. On a year-over-year (seasonally adjusted) basis February sales were flat, the worst performance in nearly seven years. According to the UK Office for National Statistics, “a small number of retailers suggested that online orders shipped from China were reduced because of the impact of COVID-19.”

UK Retail Expectations

Hard Times for Italy’s Services Sector

Despite Italy’s continued economic problems, the services sector appeared to be holding up fairly well—until March. As COVID-19 cases skyrocketed in Italy in March, the government responded with emergency shutdowns of all businesses to contain the virus and “flatten the curve.” March PMI data for the services sector reflects the economic closures with the IHS Markit headline services Business Activity Index falling to 17.4 from 52.1 in February, its lowest reading in the 22-year history of the series. The survey’s New Business Index was hit even harder, dropping 38.4 points from February’s 52.2 reading to a new low of 13.8 in March. In March, all components in the PMI Services report went below 50, indicating contraction across the board and a grim outlook for the coming months.

Italy Services Business Activity Index

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Sara Potter, CFA

Senior Content Specialist, Market Analysis

Ms. Sara Potter is Senior Content Specialist and Market Analyst at FactSet. In this role, she is in charge of thought leadership economic analysis and reports and a regular contributor to FactSet Insight where she provides commentary on a wide range of current market topics. Since joining in 1999, she has managed the economic database development team where she was responsible for the integration of third-party economic content as well as the development of FactSet Economics data. Ms. Potter is an active member of the FactSet Charity Committee which focuses on evaluating FactSet’s charitable event sponsorship and employee volunteerism programs. She earned an M.A. in International Economics and Finance from Brandeis University and holds a B.A. in Economics and French from Dartmouth College. She is a CFA charterholder.

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