A new survey by the research firm IHS Markit showed that the European economy’s recovery from the coronavirus recession stalled this month, as some earlier pandemic-related restrictions have been reinstated.

IHS Markit’s flash composite purchasing managers’ index (PMI), which is based on a survey of 5,000 companies across the 19-country eurozone and is seen as a good gauge of economic health, sank to 51.6 from July’s final reading of 54.9. It’s still above the 50-mark separating growth from contraction, however. 

“The eurozone’s rebound lost momentum in August, highlighting the inherent demand weakness caused by the Covid-19 pandemic,” said economics director at IHS Markit Andrew Harker. “The recovery was undermined by signs of rising virus cases in various parts of the euro area,” he added. 

An increase in virus cases in some European countries, such as Germany and Spain, is forcing governments to put limits on travel again and to reimpose new lockdown restrictions on some communities. And companies have been cutting jobs for a sixth consecutive month, with most layoffs occurring in the manufacturing sector.

IHS’s index measuring new business fell to 51.4 from 52.7, while the services’ sector PMI plummeted more than expected by economists, to 50.1 from 54.7, and the employment index dropped to 47.7 from 47.9. According to a Reuters poll of economists, a full bounceback from the eurozone’s deepest recession on record will take two years or more.

“The eurozone stands at a crossroads, with growth either set to pick back up in the coming months or continue to falter following the initial post-lockdown rebound,” Harker said.

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