Private sector activity in the euro area continued to contract in May but at a slower pace than in April, thanks to the gradual lifting of isolation measures, according to preliminary estimates of the composite PMI released by Markit on Thursday.
The monthly index hit 30.5 points compared to 13.6 points in April, an unprecedented contraction in activity recorded by Markit at all.
When the PMI is over 50 points, this means that the activity is progressing, and if it is less than this limit, it retracts.
“If public activity in the private sector in the eurozone fell again sharply in May, the economic crisis would have reached its minimum in April,” said Markit Chris Williamson, an economist at Markit.
He believes that deflation may continue, but in a moderate manner, “in the coming months, as the countries of the region gradually dismantle the rules of containment”.
He explained that governments may maintain “a number of restrictions pending the discovery of a vaccine or effective treatment for the emerging Coronavirus, which will lead to continued decline in demand”.
Williamson predicted, “GDP will drop by almost nine percent in 2020,” saying that any return to the pre-crisis level will take several years.
Jessica Hinds, an analyst at Capital Economics, says the May index “indicates that the economy may have bottomed in April, indicating that the economy is slowly moving towards recovery”.
The Marquette study also showed, “Employment continued to decline in May at an unprecedented rate before the Covid-19 crisis, and the layoff rate decreased slightly compared to its historic peak in April”.
The company said in a statement that hotels, restaurants, travel, tourism and all kinds of consumer services are still “suffering the harsh consequences of social divergence rules and other containment measures”.
The index is recovering in services (28.7 in May, compared to 12.0 in April) and in the manufacturing sector (35.4 in May, compared to 18.1 in April).
The PMI takes into account the recording of orders, production, jobs, delivery and inventory in the manufacturing sector.