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PMIs Across the Planet Crumble, but Volatile Markets Give Hope

The recent wave of low PMI figures from across the planet has shocked analysts. With most of humanity locked down for the last month or more, it is no surprise to see business activity collapse.

However, the scale of the drops seen in different countries takes the breath away. Even so, the hugely volatile stock and commodities markets give us hope that there is light at the end of the tunnel.

The Latest PMIs

It had been predicted that the UK would follow up March’s 36.0 with a reading in the low 30s. Yet, the April PMI from Markit shows a staggering drop to just 12.9. Without anything under 50 counting as a contraction, this number shatters all previous records.

Around 80% of service firms and 75% of manufacturers confirmed a drop in activity as part of this survey. The vast majority of them put the blame on Covid-19. It is worth remembering that 38.1 was the lowest PMI recorded during the 2008 crisis. Manufacturing showed 16.6 and the far bigger services sector tumbled to 12.3.

The composite PMI that covers the entire Eurozone also crashed, from 29.7 in March to 13.5 in April. Naturally, the services sector was in turmoil due to travel restrictions, while staff shortages hurt manufacturing badly.

In France alone, the manufacturing and service sector PMI collapsed to 11.2. Across in Germany, the numbers for business activity show an unprecedented 17.1. If we look further afield in Japan, the PMI for April was 22.8.

What Will the Effect of This Be?

The overall effects of the coronavirus lockdown are yet to be fully assessed. However, there are fears that it could lead to the worst economic shock in living memory.

Jan Vlieghe is a member of the Bank of England’s committee that sets the country’s interest rates. He said in a speech that this could be a deeper contraction that anything that the UK has suffered in “possibly several centuries”.

Vlieghe pointed out that both supply and demand have been seriously affected by the lockdown. On the bright side, he thinks that the British economy should get back on track once the pandemic ends and people can get back to business as normal.

In Europe as a whole, the latest predictions suggest a contraction this year of 7.5%. It is no surprise to see that the debt collection process has become increasingly important to struggling companies looking to survive this crisis.

Why Do the Markets Give Hope?

In such a dramatic situation, we might expect the financial markets to collapse. Yet, while many indices are down it isn’t quite the bloodbath that you may imagine.

Shares, in particular, are incredibly volatile right now, with one day’s losses being recovered the next day before being lost again. This hints at a prevailing feeling that a number of politicians have also suggested; that these shocking numbers are only going to be temporary.

There is still hope that the global economy will quickly recover once lockdown restrictions are eased. However, the fear is that the longer business activity is kept on hold the more difficult it will be to get back to normal afterwards.