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Business activity in the U.S., Europe and Japan continued to fall in May, though at a slower pace than in prior months, offering early signs that the global economy may have already experienced the worst of the economic damage from the coronavirus outbreak.
Still, the data released Thursday suggest that any economic recovery will be painfully slow.
Surveys of purchasing managers showed private-sector activity fell for the third straight month in May, despite the tentative reopening of many economies around the world. The cumulative decline in eurozone activity between March and May is the largest on record, according to
the group that compiles the data.
The surveys pointed to continued job cuts, despite a range of government programs in Europe designed to cover the wages of idled workers. That rise in unemployment will likely act as a drag on any recovery as affected households cut back on spending.
“Demand is likely to remain extremely weak for a prolonged period, putting further pressure on companies to make more aggressive job cuts,” said Chris Williamson, IHS Markit’s chief business economist. “We therefore expect…a full recovery to take several years.”
The surveys suggest many economies are likely to see larger contractions in the three months through June than those recorded in the first quarter, with the path back to levels of output that prevailed in 2019 likely to be dependent on the success of measures designed to contain fresh outbreaks.
In the U.S., the world’s largest economy, business activity continued to fall but at a less steep pace than before. IHS Markit said its index of manufacturing activity stood at 39.8 in May, up from 36.1 in April. A reading below 50.0 indicates that activity has fallen and the lower the figure, the larger the fall.
A measure of activity in the U.S. services sector—representing the broadest segment of the economy—rose to 36.9 from 26.7.
IHS Markit’s composite Purchasing Managers Index for the eurozone—a measure of activity in the private sector—rose to 30.5 in May from 13.6 in April.
Most European countries have begun to lift the restrictions they imposed in March to stem the spread of infection, but many remain in force and the return to normality appears set to be slow. A measure compiled by investment bank Jefferies and based on indicators such as energy consumption and traffic congestion suggests that eurozone activity edged up to 44% of pre-outbreak levels this week from 43% last week.
Social distancing in some form is likely to continue for many months, whether by individual choice or government edict. That means activity is unlikely to rebound as quickly as it declined.
“It is not obvious that there will be an immediate bounce back,” U.K. Treasury chief Rishi Sunak told lawmakers Tuesday.
The U.K.’s composite PMI rose to 28.9 from 13.8 in April as manufacturing and services activity registered much smaller declines, while remaining cautious about reopening in the absence of a vaccine.
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“As the sectors prepare for a further easing in restrictions and becoming Covid-ready for staff to return, the danger on the horizon is a second wave of infections threatening the health of the nation and dampening consumer confidence still further,” said Duncan Brock, group director at the Chartered Institute of Procurement and Supply.
sees gross domestic product in the U.S. falling at an annualized rate of 40% in the three months through June, the eurozone tumbling 45%, with the U.K. economy expected to contract by 56.7% and Japan by 35%. Some forecasts are for a relatively quick rebound, though the outlook depends on how quickly and thoroughly the coronavirus can be contained.
Annualized growth figures extrapolate what would happen over a full year if the economy grew or contracted at the same rate as in the quarter being measured.
In Japan, a state of emergency has been lifted in most prefectures, but five—Tokyo, three of its neighbors and Hokkaido in the north—are expected to remain locked down through May 31.
The country’s composite PMI edged up slightly to 27.4 from 25.8 in April, pointing to a further sharp drop in output.
“While Japan has largely brought the virus outbreak under control, we suspect that lingering fears about infection will prevent a rapid recovery in consumption,” said Marcel Thieliant, an economist at Capital Economics.
As well as suppressing consumption at home, lockdowns have reduced demand for Japan’s exports, and those of other countries. Figures released Thursday by the country’s Ministry of Finance showed shipments of goods to foreign buyers were 21.9% lower in April than a year earlier, led by declines in automobiles and auto parts.
Australia’s government has also begun to reopen the country’s economy, but the survey of purchasing managers told a similar story to those in Europe and Japan, with the composite PMI rising to 26.4 from 21.7 in April.
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