UK and Eurozone Face all but Certain Deep Recession

GBPEUR Forecast: Euro Remains Challenged as so Called ‘Coronabonds’ Still a Cause for Concern

The UK’s services sector has suffered its sharpest fall on record as the coronavirus pandemic destroys businesses and forces restaurants, shops, and other businesses to shut down. IHS’s Markit’s Services PMI (Purchasing Managers’ Index) confirmed a reading of 34.5, the worst reading ever recorded in the UK. A reading above 50 shows expansion and a reading below 50 shows contraction.

The catastrophic consequences of the epidemic are being widely felt as business operations cease and consumer spending freezes. Technology services was the only sector which noted an increase in activity but even this looked precarious as new workloads decreased at their fastest rate since 2011.

Group Director, Duncan Brock at the Chartered Institute of Procurement & Supply said, “It’s increasingly difficult to find the words to describe the devastation as every region in the world fights to save human life as the first priority. The likelihood of a global recession is now a given, though its duration and severity has yet to reveal itself. One thing is for certain, with the lowest business optimism for over 20 years, the immediate outlook for the services sector is beyond grim.”

Eurozone Economies

Meanwhile, numbers in the eurozone looked even worse as Italy confirmed a reading of 17.4, the worst reading ever seen, and Spain crashed to a reading of 23. A 6 and a half year run of uninterrupted growth in the Spanish economy finally came to a very abrupt halt. The figures point towards an almost certain deep recession for both the UK and eurozone.

Eurozone GDP Expected to Drop

Chris Williamson, IHS’s Chief Business Economist, said the slowdown points to a GDP hit of at least 10 percent to the eurozone, with worse to come. No countries are escaping the crisis with travel, tourism, restaurants and other leisure activities all hit hard by the measures.

Sterling is 0.21% down on the day against the euro after recovering some of the losses earlier in the day but the UK currency is still more than 2 percent up over the week. However, with horrendous economic data in both the UK and eurozone, and conditions expected to get worse before they improve, investors may not keep faith in the pound for long.

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