Vanishing Act

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What's going on?

Looks like the eurozone’s recovery could be fading fast: new data out late last week showed business activity dropped to a four-month low.

What does this mean?

First, a bit of background: these monthly surveys – which give investors a more up-to-date idea of how the economy is doing than, say, growth data – ask business managers how busy they’ve been compared to the month before, and hand out a score based on what they find. A score of 50 or higher suggests the economy is expanding, while any lower hint at – whisper it – a contraction. 



The UK may have managed to keep its head above the 50 mark, but the eurozone wasn’t quite so lucky. And even though the bloc’s still well above the all-time lows of the first coronavirus wave, the survey’s results do signal the fourth quarter could bring yet more economic shrinkage.

Why should I care?

For markets: Push and pull.


Dig a little deeper and you’ll find plenty of internal conflict in the data: manufacturing companies have seen growth accelerate thanks to strong global demand, but services – think everything from accountants to the bruised-and-battered hospitality sector – have deteriorated as the pandemic’s reared its ugly head once again. Cue the US plumping up its feathers: the country released survey data at the end of last week too, and it actually saw activity in the services sector increase



The bigger picture: Buy the double dip?


Funny thing is, European economic data for the third quarter – due at the end of the month – is actually expected to show record growth compared to the quarter before. But Friday’s survey data has already prompted economists to prepare for the fourth quarter to stagger back into the red. That means Europe could be heading straight into a “double-dip” recession – or two periods of contraction broken up by a brief stint of expansion. 

 

Originally posted as part of the Finimize daily email.

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