Activity in the private sector in Italy continued to improve in February, according to the composite PMI index, which was up 0.4 points over a month, taking it to 51.1. However, unlike the current situation in Spain, the divergence between the manufacturing sector and the services sector is becoming more pronounced.
On the positive side, the business climate in the services sector is continuing to improve (52.2; +1 point). Although backlogs of work are still significant (48.7; -0.4 points), the incoming new business component continues to recover (53.3; +0.8 points), bringing employment with it (52.8; +1.6 points).
On the negative side, the business climate in the manufacturing sector remains in a contraction zone after a marginal increase in February (48.7; +0.2 points) due to very low demand, as evidenced by the low level of components relating to new orders (47.1) and quantity of purchases (44.9). The weakness in production, visible in survey data (soft data), is reflected in the hard data, with a sharp drop in the industrial production index in January (-1.2% m/m after +1.2% in December). Nevertheless, the employment component of the manufacturing PMI has improved (51.2; +2.4 points), suggesting that companies remain optimistic about future business.
In February, for yet another month, Italy was one of the only eurozone countries1 to report inflation below 1% (0.8% y/y, -0.1 percentage points compared to January). As elsewhere in the eurozone, this is still mainly driven by high inflation in services (3.1%, -0.1 pp), which is contributing to the persistence of core inflation (2.6% y/y).
Although it has improved significantly since October 2023 (+3.5 points), consumer confidence remained low in February (-16 according to the European Commission’s economic sentiment survey). The first economic indicators relating to household consumption were mixed at the beginning of the year: retail sales contracted again in January (-0.1% m/m), but new vehicle registrations increased by 12.8% y/y in February (compared to 10.6% y/y in January).
After estimated growth of 0.2% q/q in Q4 2023, Italian real GDP is expected to slow slightly to 0.1% q/q in Q1 2024. Over 2024 as a whole, we expect growth to continue at the same pace as in 2023, i.e., +0.9% as an annual average.
Article completed on 21/03/2024
