Europe’s Economy Scarred by Lockdowns Starts on Slow Recovery

(Bloomberg) --

Europe's economy is slowly emerging from a record slump that's destroyed businesses and jobs and could lead to a near double-digit contraction year.

A gauge of economic activity in the 19-nation euro region rose in May to highest in three months after an easing of lockdown restrictions allowed companies and shops to resume business. Yet the measure still signals a sharp contraction in manufacturing and services, according to IHS Markit, which estimates a 9% economic slump this year.

Governments across the euro area are working on fiscal-stimulus plans to restart growth, complementing the European Central Bank's unprecedented monetary support. The European Commission is adding 750 billion euros ($837 billion) in grants and loans, with those countries most affected by the pandemic set to receive particular help.

Aid prospects have bolstered confidence in Italy, where the coronavirus has claimed more than 33,000 lives. A measure for future activity in the private sector climbed above the key 50 level for the first time in three months.

Optimism also returned to France, with pessimism easing in the rest of the bloc.

For the euro area, IHS Markit's headline Purchasing Managers Index rose to 31.9 in May from just 13.6 in April.

“The planned lifting of lockdowns will inevitably help boost business activity and sentiment further in coming months,” said Chris Williamson, an economist at IHS Markit. “However, the outlook is scarred by the prospect of demand remaining weak due to household spending being hit by high levels of unemployment and corporate spending being subdued.”

Euro-area employment declined sharply in May despite evidence that companies made use of furlough schemes, and orders continued to shrink significantly.

“We therefore remain cautious with respect to the recovery,” said Williamson, adding that the recovery to pre-pandemic levels of output will take “several” years.