Euro-Area Economy Stages Stronger Rebound With Demand Picking Up

(Bloomberg) --

Businesses in the euro zone saw stronger growth than initially reported in July, with output expanding for the first time since coronavirus lockdowns hit the economy in March.

Services providers and manufacturers both saw activity pick up. A composite purchasing managers' index rose to 54.9, the highest level in just over two years and above a flash estimate. Orders increased for the first time in five months.

Yet the economy is far from a full-fledged recovery. Companies made further cuts to their workforce last month, according to IHS Markit, casting uncertainty over how sustainable the region's upturn will be.

While the report showed the latest improvement was broad-based across countries, demand was still undermined by weakness in international trade.

“Whether the recovery can be sustained will be determined first and foremost by virus case numbers,” said IHS Markit economist Chris Williamson, highlighting resurgent infections as a particular risk for services.

He added that prolonged social-distancing measures are “dampening the ability of many firms to operate at anything like pre-pandemic capacity, and representing a major constraint on longer-run economic recovery prospects.”

On Tuesday, European Central Bank chief economist Philip Lane also cautioned against reading too much into recent economic data and warned that a global increase of coronavirus cases will weigh on consumers and businesses for some time.

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