EZ – Focus on PMI data for October

Erste Bank Research Team Erste Bank

Focus: EZ PMI data

EZ – focus on PMI data for October

From an economic point of view, the focus next week will be on PMI data for October. Industrial sentiment continued to brighten in September, while sentiment in the service sector suffered from the rapid rise in COVID-19 new infections. We expect this divergent trend to continue in October. In many Eurozone countries, the rapid increase in COVID-19 infections is currently requiring regional, and in some cases national, restrictions, particularly in the hospitality sector. While in France, Germany and Italy, new infections are currently on the rise, Spain has already achieved initial successes in containment, which is reflected in slightly decreasing case numbers. The number of new hospitalizations with COVID-19 patients has also stabilized in Spain since the beginning of October.

The temporary containment measures will dampen Eurozone growth in 4Q20 and possibly also in 1Q21. However, even without restrictions, the recovery would be expected to lose momentum from 4Q onwards, as growth in 3Q has benefited more than average from the economic restart.

Despite the current restrictive measures, we expect the gradual recovery of the Eurozone to continue. On one hand, this is because the chances of a continuation of the global upswing in industry are good, given that the incidence of infection with COVID-19 in those Asian countries (China, South Korea, Japan) that are important hubs in global value chains is under control. Secondly, because comprehensive fiscal stimulus measures have already been adopted. From 2021 onwards, numerous national economic stimulus packages (France and Germany, for example; each mobilize around 4% of GDP), in conjunction with the EU recovery plan (around 5% of EU GDP), will boost growth in the Eurozone. Moreover, in the course of 2021, improved treatment options for COVID-19 (drugs, vaccine) should allow a gradual comeback of sectors currently effectively closed down (e.g. events of all kinds, tourism). This would provide an additional boost to the economy in 2021 and beyond.

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Erste Bank Research Team

Erste Bank

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