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Eurozone business growth ground to a halt this month, throwing the economic recovery into question, with fresh coronavirus restrictions pushing the services industry into reverse, a survey published today indicated. IHS Markit’s flash Purchasing Managers’ Index fell to 50.1 in September from August’s 51.9, only just above the 50 mark which separates growth from contraction and well below the median forecast in a Reuters poll for a modest dip to 51.7.

Alarm bells should be going off about the pace of the recovery at the moment

Bert Colijn

The renewed downturn in the dominant services sector, which is likely to be hit harder by new constraints on activity imposed across the 19-country Eurozone, more than offset the strongest manufacturing growth in two years.

Bert Colijn at ING said: “Alarm bells should be going off about the pace of the recovery at the moment as the number of new COVID-19 cases has been flaring up.

“For governments and the European Central Bank, this will be a wake-up call, if they needed one.”

Stringent lockdown measures aimed at halting the spread of the virus brought economic activity to a shuddering stop at the height of the pandemic’s first wave in the Spring.

Most measures across Europe were relaxed as infection rates fell sharply, with recent data suggesting the continent had coped better with the coronavirus-induced recession better than initially feared.

However, Wednesday’s survey of private sector businesses suggested “the recovery is grinding to a halt, at least outside the German manufacturing sector”, said Jessica Hinds at Capital Economics.

She added: “And with no sign the resurgence in virus cases has been stamped out, there is a clear and growing risk it goes into reverse, at least in the countries worst affected by the virus.”

The flash PMI for the Eurozone service industry dropped to 47.6 from 50.5, significantly below the most pessimistic forecast in a Reuters poll, which had predicted a reading of 50.5.

Manufacturers fared better, with the factory PMI climbing to a just over two-year high of 53.7 from 51.7 and a median forecast of 51.9.

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While services came in below all expectations, manufacturing was above all of them.

The European Central Bank has already planned €1.35trillion euros of pandemic-related asset purchases aimed at supporting the economy, while the EU’s €750billion coronavirus recovery plan is due to kick in next year.

However, experts believe there is no hope of the economy recovering to pre-pandemic levels until the end of 2022 at the earliest.

Economists regard a new rise in coronavirus cases is the biggest threat to the recovering economy, according to a Reuters poll of economists.

Separate flash PMIs showed Germany’s private sector recovered ground this month but less quickly than anticipated.

In France, the Eurozone’s second-largest economy, activity hit a four-month low.

Services were also weaker than expected against a backdrop of a surge in cases.

The Eurozone is the monetary union which consists of the 19 countries which have adopted the euro as their currency.

Britain opted not to join, instead retaining the pound.

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