Eurozone business growth slows as virus rise dampens demand

The recovery was undermined by signs of rising Covid-19 cases in various parts of Europe, says IHS Markit

Municipal workers in protective gear sanitise a boat in Venice as they prepare to allow some shops to reopen in April. Reuters

Eurozone economic activity slowed in August as a new rise in cases of the coronavirus in parts of Europe blunted a recovery, IHS Markit said on Friday.

The firm's closely-watched Purchasing Managers' Index fell to 51.6 points from 54.9 points in July but was still above the key 50 points level which indicates growth.

"The eurozone's rebound lost momentum in August, highlighting the inherent demand weakness caused by the Covid-19 pandemic," said Andrew Harker, the economics director at IHS Markit.

"The recovery was undermined by signs of rising virus cases in various parts of the euro area, with renewed restrictions impacting the service sector in particular."

The data provider said that Germany, the eurozone's biggest economy, was largely unaffected by the slowdown with business confidence strongest in two years.

France, however, failed to replicate the strong rebound of the previous month with only a modest rise in new orders for companies.

The rest of the eurozone - which includes Spain and Italy - were marginally in contraction territory. IHS Markit noted that staff were being cut across the continent.

Mr Harker said the eurozone was at a "crossroads".

Growth will either "pick up in coming months or continue to falter following the initial post-lockdown rebound”.

This would depend on how successfully a second wave of the virus can be suppressed and whether Europeans will have the confidence to recharge the economy, he said.