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European economic sentiment tumbled in early March

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Via Financial Times

Economic sentiment across Europe has suffered its worst monthly fall since records began in 1985, according to data that was mostly collected earlier this month before countries enforced lockdowns to fight coronavirus. 

The European Commission’s monthly survey of business confidence across the EU tumbled 8.2 percentage points in March from 103 to 94.8, below the long-term average of 100 for the first time since January 2015.

In the eurozone, the fall was even larger, led by Italy, where lockdowns were introduced first and where the economic sentiment indicator plunged 17.6 points to 83.7, the lowest level since 2013. In Germany and France, the eurozone’s two largest economies, there were falls of 9.8 points and 4.9 points respectively with the overall sentiment indicator dragged lower by a collapse in business expectations.

The EU’s economically dominant services sector experienced the largest monthly drop in business expectations for the coming quarter since records began in 1996, with a 23 percentage point fall. Germany recorded a 30 percentage point monthly drop and Italy saw a 44 percentage point fall.

Despite the steep decline in the figures, the commission warned that they did not yet show the full impact of coronavirus because the majority of the data were collected in late February and early March.

Fieldwork to collect the data “effectively stalled” in each country when lockdowns were introduced, the commission said.

Jack Allen-Reynolds, senior Europe economist at Capital Economics, said the figures suggested stagnant economies across the EU, but he noted that the record decline still “understates the drop in economic activity and worse is likely to come in April”.

Line chart of ESI index, change over previous month showing EU economic sentiment registers historic plunge

The survey looks at a number of aspects of the economy. Employment expectations across the EU were hit hardest, with a fall from 4.5 per cent above the long-term average in February to 5.2 per cent below it in March. The commission said the largest drops in employment expectations came from the services and retail sectors, adding that “consumers’ unemployment expectations surged”.

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The data still include the UK, despite its departure from the EU. UK economic sentiment dropped sharply in the first half of March before measures of social distancing were introduced. The sentiment indicator fell from an already low 95.5 in February to 92 in March, reversing some of the gains seen after UK prime minister Boris Johnson’s victory in December’s general election.

Samuel Tombs, UK economist at Pantheon Macroeconomics, said the UK’s “small fall should not bring any comfort” because the survey’s collection dates represented the period before Britain took serious measures to fight the disease. 

Sweden, which has resisted closing schools or putting in place severe restrictions on the movement of its citizens, did not escape the large drops in business sentiment. Its indicator fell 5.5 percentage points to 93.5; service sector sentiment was particularly badly hit.

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