“France looks to be leading the pack somewhat, especially from a manufacturing sector perspective,” said Chris Williamson, chief business economist at IHS Markit, the company that publishes the survey of executives at private sector companies. The country is reaping the benefits of having companies that are more domestically focused, he told CNN Business.
“What we’re seeing in all economies is that any revivals in growth are being fueled by domestic demand,” Williamson said, pointing to the rebound in China as an example. “If you have an export oriented manufacturing sector, which is the case in Germany, it acts as a dampener,” he added.
“Broad economic activity across Europe seems to be better than we had expected for this stage of the recovery back in late March,” economists at Berenberg said in a note to clients.
While output continued to fall in both manufacturing and services, the rates of contraction slowed significantly. Job losses also moderated, but headcounts at factories continued to fall.
“Output and demand are still falling but no longer collapsing,” said Williamson. “The rise in the PMI adds to expectations that the lifting of lockdown restrictions will help bring the downturn to an end as we head into the summer,” he added.
Still, Williamson cautioned that PMI readings around the 50 level merely show stabilization in the economy. “It’s not business returning to normal. Levels have been crushed compared to what they were before the pandemic hit,” he said.
But the “sharp recovery” in PMI data suggests that GDP will not be as “catastrophically bad” as feared, said economists at Capital Economics. “Today’s data provide some reassurance that the economy is getting back on its feet. But with some restrictions still in place and fears of a second wave lingering, it will be some time before activity returns to pre-virus levels,” they said in a research note.
Some businesses are still reporting weakened demand, as customers adopt a cautious approach to spending, according to IHS Markit.
Once companies have processed orders that were put on hold during lockdowns there may be insufficient new orders to keep operations going, Williamson said.
The challenge for governments will be to ensure that demand revives enough to enable companies to see through the downturn and keep staff, he added.
France is planing to extend its jobs support program by up to two years. Labor minister Muriel Pénicaud told Franceinfo radio earlier this month that the government is considering measures that allow people to work reduced hours partially paid for by the state.
IHS Markit’s Williamson expects the European economy will take three years to recover.
— Sophie Stuber, Charles Riley, Ya Chun Wang and Benjamin Berteau contributed reporting.