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Italian manufacturing operating conditions deteriorate

Christian Fernsby ▼ | April 2, 2019
Manufacturing business conditions in Italy continued to worsen in March as a sharp reduction in new orders led to a further decline in output.
Italian manufacturing
Europe   Business confidence dipped slightly from February, but was nonetheless positive
Production fell for the eighth consecutive month, whilst new orders contracted at the fastest rate in nearly six years.

Meanwhile, business confidence dipped slightly from February, but was nonetheless positive.

The headline IHS Markit Italy Manufacturing Purchasing Managers’ Index (PMI) – a single-figure measure of developments in overall business conditions – posted below the 50.0 no-change mark for the sixth month running in March.

At 47.4, the reading was down from 47.7 in February and signalled the sharpest monthly decline in the health of the sector since May 2013.

The consumer goods sector was the only category to see operating conditions improve.

Meanwhile, sharp deteriorations in business conditions were recorded at intermediate and investment goods manufacturers.

Underpinning the fall in the PMI were declines in both output and new orders.

The rate of contraction of output was sharp and the eighth in as many months.

Anecdotal evidence from panellists indicated that demand conditions continued to deteriorate both domestically and abroad.

Not only did total sales decrease for the eighth month in a row, but also to the greatest extent in almost six years.

Additionally, new business from abroad fell in March at a rate just shy of December 2018's near six-and-a-half year record.

As a result of the setbacks in output and new work, employment in Italy's manufacturing sector declined in March.

That said, the rate of contraction was marginal as some panellists added staff in anticipation of future increases in demand.

Meanwhile, backlogs of work declined further in March, stretching the current sequence of falls to one-year.

Moreover, work outstanding decreased at the fastest pace since August 2018.

Manufacturers added to their inventories of finished goods for the first time in three months in March.

The rate of accumulation was sharp and the fastest in over ten years.

Panellists attributed the rise in post-production inventories to a reduction of customer orders.

Due to weaker trends in output and new orders, manufacturers decreased their purchasing activity.

Latest data marked the ninth successive monthly fall of input purchases, with the latest reduction accelerating since February to a near six-year record.

Amid reports of greater raw material prices (notably iron and steel), cost burdens rose in March.

That said, the rate of inflation softened from February to a modest level.

Despite this, firms raised their own charges at a quicker pace compared to the previous month.

Optimism regarding the year ahead outlook for output was sustained in March, but concerns over further contractions in customer demand and a continuation of negative market trends meant sentiment weakened from February.