We are finally getting our first glimpses of how the economy has been impacted by the COVID-19 pandemic. Economic data is starting to be released for March, which is when the virus began to really take hold on a wide scale.
Among the first important economic data releases was the flash PMI. The US Markit PMI release had its steepest decline in history, although this was slightly overshadowed by the eurozone figures which were even worse. This could be due to the US being slightly behind in terms of cases and lock-downs.
However, things may worsen for the US in the next release. The Markit’s own economist said that it “underscores how the US is likely already in a recession that will inevitably deepen further”.
Italy has been at the forefront of the coronavirus pandemic in Europe and has been in national quarantine since early March. The latest PMI data for the eurozone shows how negative the virus fears and lock-downs have been on the economy.
Markit PMI for manufacturing and services, which was launched in 1998, fell to its lowest ever reading at 31.4. This was even beyond figures seen during the financial crisis in 2008. Any reading below 50 shows that the economy is in contraction.
The hardest hit industries are those that are customer facing, such as the food service industry and tourism. This led to the decline in services being more severe than the decline in manufacturing, although this was still hit hard.
PMI has a very high correlation with GDP. The recent figures give an estimate that GDP is on track for the biggest contraction since the eurozone was created.
There is currently an unprecedented amount of stimulus being pumped into the global economy, but no one can be any clearer about how long this downturn is going to last. In future PMI releases, the areas of focus will be increases in new orders, new business and any increases in output and activity. This would show if the economy is beginning to recover.
As long as the virus continues to spread globally, businesses will likely be shut down and supply chains will be affected. It may be some time before we see an improvement in economic activity and get back to normal.