Europe’s pandemic-stricken economy is showing the early signs of recovery as business and consumer confidence rebounded from near-record lows in May, according to the European Commission’s monthly survey.
The commission’s economic sentiment indicator for the EU rose by 2.6 points to 67.5, based on a poll of about 135,000 businesses and 32,000 consumers across the region earlier this month.
Consumer and industry confidence both regained about a fifth of the record losses suffered as the pandemic led to the shutdown of much of Europe’s economy in March and April, it said. However confidence in the services sector continued to decline, albeit at a slower rate.
Children have been returning to schools, many shops and restaurants have reopened and manufacturers are ramping up production since lockdowns imposed across Europe to contain coronavirus started to be partially lifted from late April — but social-distancing rules are mostly still in place.
The outlook for the job market brightened as companies reported “significantly improved employment plans in all surveyed sectors” which regained between a quarter and a fifth of the combined drop in March and April, the commission said. The recent surge in fears of job losses among consumers halted in May, it added.
Among the biggest economies, confidence recovered fastest in the Netherlands, Germany and Spain, while it fell slightly in France and dropped more in the UK. The commission said a month-on-month calculation was not possible for Italy, because it had been unable to carry out its survey there in April.
However retail sales in Spain and Germany fell at the fastest pace on record in April, according to separate data published on Thursday, while inflation slowed as the pandemic forced the closure of most shops and crushed demand.
The damage done by the lockdowns is set to drag Europe into its deepest postwar recession. Christine Lagarde, president of the European Central Bank, this week lowered its outlook for the eurozone economy, predicting it would shrink by 8 to 12 per cent this year.
The commission said the partial recovery of confidence among industrial companies was “entirely attributable to a vivid improvement in managers’ production expectations which reversed roughly half of the decline registered over March and April”. But it said industrial groups were more pessimistic about current order books and stocks of finished products.
In the services sector, confidence in the past business situation and past demand worsened, while “significantly improved demand expectations provided a glimmer of hope for the months to come,” it said. Meanwhile, confidence was “virtually flat” among retailers, it fell slightly among construction companies, while edging up for financial services companies.
Economists at SEB said the results of the commission’s survey were “a disappointment” despite most of the polling being done before lockdowns were lifted. “We still view April as being the worst month, but today’s numbers raise some questions about this,” they said.
In April, the volume of retail sales in Spain fell 31.6 per cent compared with the same month last year, according to official data. This represents by far the largest drop on record and dwarfs the 14 per cent fall in March.
In Germany, experimental statistics showed that the value of sales at non-financial businesses dropped 13.8 per cent in April compared with the previous month, national statistics body Destatis reported. The drop follows a 7.5 per cent fall in March and takes sales back to their 2016 level.
The German data are based on a new experimental early indicator determined from monthly sales tax returns, providing initial results before the official survey is available.
Separate Spanish data showed consumer prices — a broad measure of demand — contracted by 1 per cent in May compared to the same month last year, the lowest in four years.
German inflation slowed in May to 0.5 per cent — down from 0.8 per cent in April — mainly due to lower energy prices.