“Eurozone businesses had an encouraging start to the third quarter, with output growing at the fastest pace in just over two years in July, as lockdowns continued to ease and economies have reopened. Demand has also shown signs of recovery, helping to dampen the pace of job losses, ”said Chris Williamson, chief economist at IHS Markit, which provides the data, in a statement.
Businesses in France led the recovery in the 19-member region, with industry and services showing the best output growth in two and a half years. France’s composite flash production index (which measures both sectors) hit 57.6 in July, a 30-month high.
However, the shape of the recovery in the region remains worrying. Many eurozone countries have reopened their economies, but social distancing measures are in place and many companies are operating at reduced capacity to avoid a spike in cases.
As a result, there are fears that unemployment levels will skyrocket in the coming months as businesses struggle to operate at pre-Covid levels. Governments will likely end their financial support to businesses to keep all their employees on the payroll.
“The problem is that the recovery could weaken after this initial recovery. Companies continue to downsize to a worrying degree, with many fears underlying demand may not be enough to support the recent improvement in production. Demand is expected to continue to pick up in the coming months, but the fear is that rising unemployment and damaged balance sheets, as well as the need for continued social distancing, could hamper the recovery, ”said Williamson, from IHS Markit.