Euro Area’s Path to Growth Haunted by Post-Pandemic Uncertainty

(Bloomberg) -- The euro-area economy should grow again in the third quarter although weak demand and mounting job cuts will likely weigh on the recovery.

The quarterly pace of economic contraction slowed to a mere 0.2% in June, with a gauge measuring private-sector activity rising to a four-month high, according to IHS Markit. While orders -- from home and abroad -- continued to decline, companies grew confident that a continued easing of lockdown restrictions would break that trend over the next year.

“The upturn signals a remarkably swift turnaround in the euro-zone economy's plight amid the Covid-19 pandemic,” said IHS Markit's Chris Williamson. “An improvement in business sentiment meanwhile adds to hopes that GDP growth will resume in the third quarter.”

Policy makers have already cautioned that the economy is unlikely to maintain its current pace of recovery. European Central Bank President Christine Lagarde warned this week that the hardest challenges for the 19-nation region might still be ahead, with her chief economist describing the way out of the crisis as “two steps forward, one step back.”

“While confidence in the future has improved, it remains well below levels seen at the start of the year, reflecting how many businesses are far from back to normal,” Williamson said. “Many remained risk averse, being reticent to commit to spending and hiring due to persistent uncertainty as to the economic outlook.”

In June, a Purchasing Managers' Index for manufacturing and services rose to 48.5, exceeding its initial estimate. France was the only country with a reading above 50, the threshold that divides expansion from contraction.

©2020 Bloomberg L.P.