The Day at a Glance | June 23 2020

Firm recovery in Europe during June

The European economy`s PMIs recorded an important revival in economic activity during June, although they are still in contraction and signs of a long and slow recovery prevail. The composite PMI increased to 47.5 (vs 31.9 May) – its second largest increase in history – with upturns in manufacturing (46.9) and services (47.3), which exceeded estimates. The rebound in activity reflects the reopening of European economies and this was particularly the case in France, where data signaled expansion for the first time in four months. Nevertheless, the feeling regarding the future is still negative as new businesses still show a downwards trend, there is less employment and businesses are cutting prices to incentivize sales. Surveys keep showing low demand among business clients as well as consumers as both remain cautious with their spending. “Business activity and demand are still falling, but they are no longer plummeting”, assured the IHS/Markit report. The strength and sustainability of the upturn is still questionable, given the fact that many sectors of the economy remain affected by the containment measures and the high probability of seeing a second outbreak of the virus in fall. Additionally, employment indicators suggest that demand could stay low for a longer period of time. Data is consistent with a (-) 8% quarterly contraction for 2Q20 in Europe; it`s estimated that it will take the continent at least 3 years to return to levels of activity seen prior to the crisis.

Global trade contracts 3% in 1Q20

Figures published by the World Trade Organization (WTO) confirmed a 3% annual contraction in the trade of goods at an international level as an 18.5% contraction is forecasted for the 2Q20. According to the WTO`s report, these figures are the lowest in history but still remained far away from reaching levels in the worst scenario drawn by the Organization. “It could have been much worse”, assured Roberto Azevedo, Director-General of the WTO, who applauded the immediate actions carried out by governments in order to avoid a more severe contraction. The most optimistic forecast by the WTO estimates a 13% annual contraction in trade at the end of 2020, which could be reached if trade increases 2.5% annually on average in the second half of the year. However, forecasts still remain uncertain and will be subject not only to the virus`s evolution, but also the persistence of fiscal and monetary stimuli. At the moment, positive figures in air cargo transportation (which has recovered 58% since mid-April) and container traffic in ports have allowed the Organization to assert that its worst scenario (a 32% annual contraction) is increasingly unlikely.