Europe Economy

Euro zone business activity rebounds in May, but fears of a slow recovery persist

Key Points
  • Data from IHS Markit showed that business activity in the euro zone rebounded in the month of May.
  • Their latest survey showed the strongest reading since February.
  • However, there are still concerns about the pace of the economic recovery. 
MADRID, SPAIN – APRIL 06: A butcher wearing a mask is seen working at the 'Carnes de Pedraza' Butcher in Alpedrete on April 06, 2020 in Madrid, Spain.
David Benito

Business activity in the euro zone hit a three-month high in May, as the region began to slowly reopen after approximately two months of coronavirus lockdowns.

Data from IHS Markit, released Thursday, showed that the "flash" euro zone composite Purchasing Managers' Index (PMI) came in at 30.5 in May, up from 13.6 in April. May's reading was the highest since February. 

The survey measures business activity in the services and manufacturing sector in the 19-member euro zone; a reading below 50 indicates a contraction. 

"All euro zone countries eased their Covid-19 containment measures to some extent in May, helping to moderate the overall rate of economic decline," Chris Williamson, chief business economist at IHS Markit, said in a statement.

However, he added that growth figures for the second quarter are "still likely to fall at an unprecedented rate, down by around 10% compared to the first quarter."

The coronavirus pandemic has hit the euro zone economy hard, after most countries implemented strict movement restrictions and social-distancing measures in March.

Italy, Spain, France and Germany — the four largest euro economies — are among those most severely affected by the pandemic. However, they've all started to open parts of their economies after a reduction in the coronavirus contagion rate.

Earlier Thursday, flash composite PMIs for France came in at 30.5 for the month of May, from 11.1 in April. In Germany, flash composite PMIs reached 31.4, from 17.4 the month before.

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Analysts have said that last month most probably marked the low point, but there are concerns about the pace of the recovery.

"The good news is that April almost surely was the bottom. The bad news is that the rebound is painfully slow, adding further weight to the idea that the second-quarter hard data, and final GDP headline, will look awful," Claus Vistesen, euro zone economist at Pantheon Macroeconomics, said after the French data release.

Many euro area countries, such as Spain, Italy, Greece and Portugal, rely on tourism as a key economic driver. However, it is unclear whether visitors will travel abroad this summer. 

Speaking to CNBC's "Squawk Box Europe" Thursday, Luis Araujo, president of Portugal Tourism said, "it is a matter of building trust."

He added that the sector is "worried about the future," but hopeful that the new cleaning and health measures will attract tourists this summer.