Euro zone factories lagging Asia’s recovery from corona crisis

3 December, 2020 12:00 AM printer

London: Euro zone factory growth cooled last month as renewed coronavirus lockdown measures hurt demand, leaving the bloc lagging many Asian peers who recovered further from the Covid-19 crisis, surveys showed on Tuesday.

Germany was the euro zone’s powerhouse while, in Asia, Chinese factory activity accelerated at the fastest pace in a decade, energising regional growth and a sign the world’s second-largest economy is rebounding to pre-pandemic levels, report agencies.

But a global resurgence in coronavirus infections has made the outlook highly uncertain, keeping governments and central banks under pressure to maintain or ramp up their massive stimulus programmes.

European Central Bank President Christine Lagarde made clear at last month’s policy meeting and in a speech that another round of monetary stimulus this month is all but certain.

The euro zone is on track for its first double-dip recession in nearly a decade, according to a recent Reuters poll of economists, and IHS Markit’s final manufacturing Purchasing Managers’ Index fell to 53.8 in November from October’s 54.8.

“Manufacturing is not that bad considering the pressure on the economy, but it’s all about services which have lost a lot of momentum,” said Peter Dixon at Commerzbank.

While the region’s manufacturing sector continued to expand, an earlier flash reading of the overall survey showed growth in the dominant service industry contracted last month as Covid-19 restrictions were imposed to quell a second wave of infections.

Factories across Europe reduced headcount again although German unemployment fell unexpectedly in November and optimism improved amid progress in developing Covid-19 vaccines.

British factories, meanwhile, recorded their fastest growth in almost three years last month as they stockpiled raw materials and rushed to complete work before new post-Brexit customs rules come into force on Jan 1.

Britain and the EU have so far failed to agree on tariff-free trade and even with a deal many exporters fear lengthy delays at ports due to new customs requirements.

“Even if a trade deal is signed off at the last minute, sparing UK-EU trade from tariffs, manufacturing output likely will fall back in Q1, due to the shift in the timing of export demand,” said Samuel Tombs at Pantheon Macroeconomics.