Italy: PMI enters into contractionary territory in August
September 1, 2016
The IHS Markit manufacturing Purchasing Managers’ Index (PMI) dropped from 51.2 in July to 49.8 in August, marking the lowest reading since December 2014. Consequently, the index fell below the 50-threshold that separates expansion from contraction in the manufacturing sector.
August’s result mainly reflected a reduction in new orders, the first in over one-and-a-half years, which led to the weakest growth in output since the start of 2015 and only a modest rise in employment. Both weak domestic demand and sluggish growth of new orders from abroad contributed to the drop in overall new orders. In addition, manufacturers’ purchasing activity declined for the first time in six months, probably in an attempt to deplete stocks. Regarding price developments, input prices decreased, most likely reflecting lower raw material costs. Output charges also diminished, driven down by both reduced input costs and stronger competitive pressures. Phil Smith, Economist at IHS Markit, added that, “Italy’s manufacturing sector showed further signs of slowing in August, with the PMI dropping for the second month running to its lowest level for 20 months. New orders decreased, to halt a one-and-a-half year spell of continuous growth, reflecting a combination of weaker domestic demand and a softening trend in export sales.”