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Eurozone CRISIS: ‘Dreaded’ double-dip recession ‘more likely’ as Europe’s economy crippled

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Fresh lockdown restrictions have forced many businesses in the service industry to limit operations and economists warn the resurgence of COVID-19 will stop the Eurozone’s faltering economic recovery in its tracks.

After a stellar third-quarter GDP figure, we could be in for the dreaded double-dip

Bert Colijn

ING analyst Bert Colijn said: “The Eurozone PMI confirms that the second wave of the coronavirus is weighing more and more on the economy.

“A double-dip in the fourth quarter is becoming more likely at this rate.

“The most restrictive measures taken so far have hit the recreational sector more than other parts of the economy.

“That impacts the service sector disproportionately. The same holds true for the change in behaviour among the population, as services require more in-person interaction and rely more on personal consumption.

“From here on, the path for the economy is highly uncertain.

“With cases continuing to rise at a worrying pace, more restrictive measures in the Eurozone definitely cannot be ruled out.

“After a stellar third-quarter GDP figure, we could be in for the dreaded double-dip.”

Chris Williamson, chief business economist at IHS Markit, said: “The Eurozone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity in October.

“While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the European Central Bank to add more stimulus and for national governments to help cushion the impact of COVID-19 containment measures, which not only tightened across the region in October but look set to be stepped up further in November.”

Data published today showed the bloc’s economy running at two speeds, with manufacturing benefiting from strong global demand but services – which make up the bulk of the economy – struggling to remain active as lockdowns force consumers to stay home and businesses to close.

In contrast, in China – where the economy relies much more heavily on manufacturing and where the pandemic is largely under control – the recovery accelerated last quarter as consumers shook off their caution.

Highlighting the gulf between services and manufacturing, German factories powered ahead this month, while in France activity contracted as a resurgence of the virus hit the Eurozone’s second-biggest economy.

Economists are also warning of a bleak winter for the jobs market which until now has been shielded by government furlough schemes as the uncertain outlook meant firms reduced headcount for an eighth month.

The composite employment subindex nudged up slightly, but remained in negative territory as analysts warned the Eurozone’s jobless rate would not peak for another six months.

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And as infection rates and the global coronavirus death toll continues to rise, optimism is heading south.

The services business expectations index dropped to 54.6 from 59.2, its lowest since May when the initial lockdowns were being eased.

A delay in the EU’s £680bn stimulus package has done nothing to improve on sentiment across the bloc.

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