Euro zone business activity grew in July

Euro zone business activity grew in July for the first time since the coronavirus pandemic hit, as more parts of the economy that were locked down to curtail its spread reopened and people emerged from their homes to work and spend money.
Across the world almost 15.5 million people have been infected by the coronavirus but as the rate of infections has eased across much of Europe, governments have loosened some restrictions.

That unleashing of pent-up demand pushed IHS Markit’s flash Composite Purchasing Managers’ Index (PMI), seen as a good indicator of the bloc’s economic health, to 54.8 in July from June’s final reading of 48.5, its highest since mid-2018 and well ahead of the 51.1 forecast in a Reuters poll.

“The sharp rise… is an encouraging sign that the economic recovery continued at a decent pace. But we suspect that activity will remain below pre-crisis levels for at least the next couple of years,” said Jack Allen-Reynolds at Capital Economics.

The headline index had been below the 50 mark which separates growth from contraction since March so a return to positive territory will be welcomed by policymakers and governments who have pumped trillions of euros into the economy.

European Union leaders agreed a 750 billion euro pandemic recovery fund on Tuesday and with European Central Bank monetary policy expected to stay ultra-loose for a long time, optimism about the year ahead improved.

Markets are still expecting a V-shaped recovery – as are some economists – but while Friday’s data indicated a bounceback of sorts, it is unlikely to support those views.

“A V-shaped recovery seems quite unrealistic, despite the encouraging numbers,” said Bert Colijn at ING.

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