By Paul Hannon
Europe seems set to end 2020 as a weak spot for the global economy, as business surveys indicate that service providers saw another decline in activity during November, while their Asian counterparts reported a continued pickup.
Fresh waves of coronavirus infections prompted many European governments to impose tough new restrictions on businesses and households in late October, measures that are now being eased.
By contrast, some Asian countries have largely contained the pandemic, and are easing the less severe restrictions they retained. The result is that while Europe's largest economies are likely to contract in the final quarter of the year, the recovery in Asia's largest economies is set to continue.
Data firm IHS Markit Friday said its Purchasing Managers Index for the eurozone's services sector fell to 41.7 in November from 46.9 in October, its lowest level since May. A reading below 50.0 points to a decline in activity, while a reading above that threshold points to an increase.
Similar surveys for the U.S. to be released later Thursday are expected to point to a strong rise in activity.
But while the recent surge of virus infections has been a setback for the economic recovery, the increasingly likely prospect of an effective vaccine becoming widely available in 2021 has lifted spirits, with service providers reporting that they are more confident about the future than in recent months.
"Growth expectations have lifted higher, as vaccine developments fuel optimism that life can start to return to normal in 2021," said Chris Williamson, chief business economist at IHS Markit. "It's anticipated that business and consumer spending will start to rise as the outlook brightens, though a high degree of caution is expected to persist for some time to come."
There are also signs that consumers are willing to spend, if they are allowed to or aren't fearful of infection. Retail sales in the eurozone were 1.5% higher in October than in September, and up 4.3% from the same month of 2019, the European Union's statistics agency said Thursday. Purchases of electrical goods and furniture were again strong, and 11.5% higher than in October 2019.
While the decline in activity across Europe associated with the new restrictions is likely to prove temporary, central bankers and governments are poised to provide additional stimulus to ensure the recovery continues into 2021, a stance encouraged by the International Monetary Fund.
"We are in a place where still the motto has to be pray for the best, prepare for the worst," Kristalina Georgieva, the IMF's managing director, said Monday. "And that, in the case of the eurozone, clearly is related to how to handle this loss of momentum in the recovery that the new surge in infections has brought."
Eurozone service providers said they continued to cut jobs in November, a sign of continued wariness. By contrast, their counterparts in China and India added to their payrolls as activity continued to increase at a rapid pace.
China's services PMI rose to 57.8 in November from 56.8, reaching the second-highest level in a decade. Confident in their prospects, the country's service providers created new jobs at the fastest pace in a decade.
India's service providers hired additional workers for the first month in nine months, as the country's services PMI edged down to 53.7 from 54.1. Economists expect its recovery to continue into next year.
"The economy should continue to rebound over the coming months as Covid-19 restrictions gradually get scaled back," said Shilan Shah, an economist at Capital Economics. "Indeed, fears that the Diwali celebrations would lead to a renewed surge in virus cases have not been realized."
Write to Paul Hannon at firstname.lastname@example.org
(END) Dow Jones Newswires