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Recovery of the euro area stems when the service industry suffers

A queue for Covid-19 tests outside a laboratory in Paris on September 22, 2020 in Paris, France.

Kiran Ridley | Getty Images News | Getty Images

Eurozone activity hit in September as countries face a second wave of coronavirus infections, original data showed on Wednesday.

The rapid PMI index (Purchasing Managers̵

7; Index) composite index – which measures both manufacturing and services – stood at 50.1 and pushed only marginally into the expansion area. A reading below 50 indicates an economic decline. The latest preliminary issue points to a three-month low economic activity in the region.

The service sector is in a particularly difficult state, the data show, and activity fell this month to a four-month low. Production in the euro area remained in positive territory, peaking at 31 months.

“A two-speed economy is evident, with factories reporting that production growth was driven by increased demand, especially from export markets and the resumption of retail trade in many countries, but the larger service sector has declined in terms of consumers, especially companies, with growing virus problems. says Chris Williamson, chief economist at IHS Markit, in a statement alongside the data.

The European Center for Disease Prevention and Control said that by September 22, there had been 2.9 million confirmed infections in the region, with Spain and France now seeing daily cases rise above the 10,000 limit. Governments have announced new restrictions to prevent the spread of the virus and economists have begun to consider the economic consequences of the new measures.

“The sharp rise in Covid-19 cases recorded across France in September helped explain the first decline in business since May,” Eliot Kerr, an economist at IHS Markit, said in a statement on Wednesday.

A sharp fall in activity in the French service sector was not fully offset by manufacturing output. This led to the total index for France falling for the first time in four months, IHS Markit reported.

In Germany, the pace of economic recovery slowed but was somewhat offset by the manufacturing industry. “The biggest concern at the moment is therefore whether the weakness in September data will intensify to the fourth quarter and result in a slippage back to the recession after a frustratingly short return in the third quarter,” Williamson said.

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