Italy: Manufacturing sector contracts for the first time since August 2016
The IHS Markit manufacturing Purchasing Managers’ Index (PMI) dipped to a near four-year low of 49.2 in October from September’s 50.0. The index thus moved below the crucial 50-point threshold that separates expansion from contraction in the manufacturing sector for the first time in over two years.
The deterioration in operating conditions came on the back of falling production and new orders. New orders declined for the third consecutive month, and at the sharpest pace since May 2013, due to continued slowing in domestic demand and to the first contraction in export orders—especially from Asia—in almost six years. This translated into another month of contraction in output, reduced backlogs of work and rising inventories of finished goods. However, manufacturers continued to hire, although the pace of job creation was modest. Input costs, meanwhile, rose notably due to higher prices for raw materials—especially oil-based products— which prompted firms to raise their output prices, albeit at a slower pace than in September. On the other hand, business confidence remained optimistic, although Paul Smith, director at IHS Markit, stressed that:
“This optimism was tempered by fears of a slowdown in key export markets, particularly in Asia, and political uncertainty. This may lead to Italy’s industrial base dragging down wider economic growth in the last quarter of 2018.”