Italy’s factories have started to cut their workforce as the country’s manufacturing recession shows no sign of a let-up in the wake of a worse-than-estimated quarter for the economy as a whole.
(Bloomberg) — Italy’s factories have started to cut their workforce as the country’s manufacturing recession shows no sign of a let-up in the wake of a worse-than-estimated quarter for the economy as a whole.
An index based on surveys of purchasing managers by S&P Global extended its negative series in August, hitting an index level of 45.4. The euro-zone’s third-biggest economy shrank more than previously measured during the second quarter, according to separate data released on Friday.
The PMI gauge was an improvement from the previous month, but the new reading is clearly below the 50 level that indicates contraction — and it also fell short of the median economist estimate in a Bloomberg survey.
“The manufacturing recession which started mid-last year continues to stretch out,” Tariq Kamal Chaudhry, an economist at Hamburg Commercial Bank, said in an accompanying analysis. “Once more, overall orders felt the squeeze, mostly due to overseas demand.”
The economy’s souring outlook may be a problem for Prime Minister Giorgia Meloni’s government, which is set to present a budget later this month and was counting on growth to meet deficit targets.
After a strong start to 2023, Italy’s contraction in the three months through June came as a surprise when it was first revealed, and the new assessment showed a contraction of 0.4% instead of 0.3% as initially estimated. Both investment and trade weighed on the economy, statistics officials said.
Analysts predict growth of just 0.1% in each of the remaining quarters.
Initial data from S&P Global last week also revealed a worsening downturn for the whole euro area as services followed the struggling manufacturing sector into contraction.
Despite the economic difficulties, Italy’s labor market has held up well, though the monthly PMI survey suggests that trend may be about to change.
“On the employment front, job losses were recorded for the first time in three years,” S&P Global said in a statement Friday. “Several panelists signaled the non-replacement of leavers at their plants.”
A separate report showed that activity at Spain’s manufacturers contracted for a fifth month in August, signaling a factory recession there too.
“Our expectation is that the industry’s slide has gotten worse, reaching about -1% this quarter,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “Weakness stems above all from domestic demand. While new export orders took a dive at about the same pace as in July, the downturn in total new orders picked up notably.”
–With assistance from Mark Evans and Joel Rinneby.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.