Italian industrial output rises for first time since March 2008

Two months after the Eurozone as a whole, output at Italian manufacturing plants rose in October. This brought to an end a period of contraction that was unprecedented in terms of both depth and length. Latest data also signaled a fractional rise in the level of incoming new orders, which increased for the first time since December 2007. However, marked declines in employment meant that overall conditions continued to deteriorate.

At 49.2 in October, up from 47.6, the seasonally adjusted Markit/ADACI Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – pointed to an overall worsening of conditions. Nonetheless, the deterioration was the weakest for 19 months.

For the first time since March 2008, output at Italian manufacturers rose during October. Panel members reported that a modest rise in new orders was the principal reason for higher output. However, there was further evidence from the survey that backlogs were lowered in order to support production volumes.

Anecdotal evidence from the survey panel indicated that tentative signs that the Italian economy is starting to emerge from recession led to a slight rise in new business in October. This improvement in demand was the first in 22 months.

The expansion in overall new orders was driven by the domestic market, as new orders from abroad continued to fall. New export demand deteriorated for the 20th consecutive month during October. Panelists noted that demand in the United States, the United Kingdom and Eastern Europe was particularly weak.

There was further evidence of spare capacity in the Italian manufacturing economy in October, as outstanding business and employment both continued to fall. Manufacturers have now reported a reduction of backlogs for 27 consecutive months. Weak demand remained a key driver, as firms utilized spare resources to support output.

Low workloads and cost-cutting initiatives led to further job losses during October. This extended the current period of staff cuts to twenty-one months. Furthermore, workforce reduction accelerated since September.

Italian manufacturers recorded a second successive rise in input costs during October. Although only fractionally faster than seen in the previous month, the pace of input price inflation was the sharpest since September 2008.

Firms were unable to pass on higher costs to clients in October. Intense competition and the relative strength of the euro forced them to lower charges in an attempt to stoke demand.

Commenting on the Italy Manufacturing PMI survey data, Andrew Self, economist at Markit, said: “Italian manufacturers reported that their recession which has spanned 18 months finally ended in October, two months behind the Eurozone as a whole. Production rose for the first time since March 2008, driven by a marginal return to growth of new orders. Although the October survey represents a step in the right direction on the road to recovery, weakness persists which suggest that a sustainable upturn is by no means guaranteed. Importantly, new contracts were often won only by fierce price discounting, which led to ongoing widespread job losses, which in turn suggests that consumer spending is likely to remain subdued for some time to come.”