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Euro zone enterprise exercise shrinks as soon as extra as Covid second wave surges

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A worker at a Paris bar sweeps up after closing early to comply with new Covid-19 restrictions.

Kiran Ridley | Getty Images News | Getty Images

LONDON — Economic activity in the euro zone shrunk in October as coronavirus restrictions returned to the region, preliminary data showed on Friday.

The flash euro zone PMI composite output index, which looks at activity in both manufacturing and services sectors, dropped to a four-month low in October to 49.4, versus 50.4 in September. A reading below 50 represents a contraction in activity.

The latest figures showed that manufacturing has remained somewhat resilient over the last month, but activity in services has fallen to a five-month low.

“The euro zone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity in October,” Chris Williamson, chief business economist at IHS Markit, said in a statement.

He added that the data “revealed a tale of two economies, with manufacturers enjoying the fastest growth since early-2018 … but intensifying Covid-19 restrictions took an increasing toll on the services sector.”

New restrictions

The latest numbers coincided with a period of new restrictions across the euro zone as it grapples with a second wave of coronavirus infections.

France introduced new curfews last week and decided to expand them to more regions on Thursday, meaning that restaurants and bars in cities such as Paris, Marseille and Lyon have to close at 9 p.m. local time. On Thursday, French authorities reported the highest ever number of new daily infections.

France’s composite output index came in at 47.3 in October, a five-month low, in comparison with 48.5 in September.

The Netherlands returned to a partial lockdown last week as infections spiked in the country. The new restrictions include: No more than three home visitors per day; restaurants and bars must close, although take away is still possible. Meanwhile, Ireland announced a four-week ban on household visits and Germany is advising people against traveling to ski resorts.

German divergence

Germany’s composite output index reached 54.5 in October given the importance of its manufacturing industry for the overall economy.

“The divergence is even starker by country. While Germany is buoyed by its manufacturing sector booming to a degree exceeded only twice in almost 25 years of survey history, the rest of the region has sunk into a deepening downturn,” Williamson also said.

The challenges that the euro zone is facing in the wake of the pandemic are putting additional pressures on the European Central Bank. Economists believe that further monetary stimulus is on the way before the end of the year.

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Katherine Clark