RIO DE JANEIRO, BRAZIL – Business activity collapsed from Australia and Japan to Western Europe at a record pace in March, as efforts to contain the coronavirus slammed the world economy.
In the United States, business activity retreated further in March, reaching a record low as the coronavirus pandemic put pressure on the manufacturing and service sectors and reinforced economists’ perception that the US economy is already in recession.
The IHS Markit said on Tuesday that its Preliminary Composite fell to a reading of 40.5 this month. This was its lowest level ever, down from 49.6 in February. A reading below 50 points to contraction.
“The coronavirus outbreak represents a major external shock to the macro perspective, similar to a large-scale natural disaster,” analysts at the BlackRock Investment Institute said in a statement.
Activity in the 19 countries that use the Euro has collapsed, as countries have ordered a shutdown of services to contain the spread of the disease by closing shops, restaurants and offices.
The preliminary IHS Markit composite PMI data for the eurozone -viewed as a sound economic health indicator- collapsed to a record low of 31.4 in March.
This was by far the largest drop in a month since the survey began in mid-1998 and fell below all projections in a Reuters survey, which had shown a reading of 38.8 by the median estimate.
The IHS Markit said March figures suggest the eurozone economy is shrinking at a quarterly rate of about two percent, and escalating measures to contain the virus could exacerbate the crisis.
In Japan, PMI surveys showed that the services sector contracted at its fastest pace ever recorded this month, and manufacturing activity contracted at the fastest pace in a decade.
The data is consistent with a four percent contraction in 2020, Capital Economics senior economist Marcel Theliant said. The postponement of the Tokyo Olympics is expected to deliver a major blow to the world’s third-largest economy.
Infinite stimulus
With most financial markets sinking, global central banks are taking extraordinary measures on an almost daily basis to contain the collapse.
However, some analysts say that endless relaxation of monetary policy may not be enough and fiscal steps are crucial. The latest US effort on this front remains stagnant in the Senate, as Democrats said that the package under review reserved too little money for hospitals and insufficient limits on financing for large companies.
“For the US economy to emerge from the current crisis and recession relatively unscathed, more radical policy interventions will be required in the coming weeks,” said Anna Stupnytska, global head of macro strategy and investment at Fidelity International.