Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
The latest PMI data signalled quicker growth of the Italian
private sector economy during July, as the loosening of COVID-19
restrictions provided a sustained boost to client demand across
manufacturing, services and construction, with the latter also
continuing to benefit from government eco- and super-bonus tax
relief schemes.
Italy's private sector economy saw quicker output growth during
July, according to the latest PMI data. The All-Sector Output Index
- a weighted average of the comparable manufacturing, services and
construction PMI indices - rose to 58.4 and signalled the
second-strongest rate of expansion in all-sector output in 15
years, behind only January 2018.
The private sector economy has now recorded an upturn in each
month since February, with the average all-sector Output Index
reading over the second quarter of the year, at 55.2, also the
highest since the opening three months of 2018.
The latest official GDP (preliminary) estimates for Q2 2021
point to a 2.7% increase on the quarter and an annual rate of GDP
growth of 17.3%.
Italy's manufacturing sector continues to drive growth
in July
Goods producers continued to record the sharpest pace of
expansion across the three monitored sectors during July, a trend
that has existed since the initial rebound in all-sector output
during February. The sector also saw much earlier signs of
recovery, with factory production rising consecutively in each
month since June 2020, while for construction and services, the
current period of sustained growth began in February and May 2021,
respectively.
Manufacturing output growth did slow further in July from May's
more than 10-year peak, as did the rate of increase in order book
volumes, but the expansions were nonetheless among the fastest seen
since data were first collected in January 1998 and reflective of
another strong performance.
With demand remaining strong, the slowdown primarily reflected
ongoing supply-side issues, which constrained growth not just in
Italy but across the wider eurozone manufacturing sector.
The Suppliers' Delivery Times Index -
a widely used indicator of supply delays, capacity constraints and
price pressures - signalled a further lengthening of lead times
for manufacturing inputs in July, with delays the third most severe
on record (behind June 2021 and April 2020). Shortages were the
primary driver of delivery delays, according to survey respondents,
alongside logistics issues and surging demand for materials, all of
which inhibited Italian manufacturing output as companies were left
waiting for inputs before completing orders.
As such, capacity pressures also contributed to the waning
momentum of the goods producing sector in July, due to both these
supply constraints and material shortages, but also amid reports
that firms were struggling to keep up with demand. The level of
work in hand (but not yet completed) at Italian manufacturers rose
for the seventh month running, with the rate of backlog
accumulation easing only slightly from June's record pace.
Italy's service sector rebounds following looser
lockdown measures
The quicker rate of all-sector output growth during July was
also driven in part by a stronger services performance, with the
sector benefitting from the easing of COVID-19 containment measures
and reopening of customer-facing industries. Business activity
continued to rebound, with the latest upturn the
strongest for 14 years. The resumption of international travel
also led to stronger client demand, according to panellists, with a
record increase in export orders providing a further boost to the
sector in the opening month of the third quarter.
Service providers subsequently took on additional staff for the
fourth month in a row, and at the fastest pace since late-2019,
suggesting that firms are increasingly confident the recovery will
continue following the severe COVID-19 induced downturn throughout
the majority of 2020 and early-2021.
Tax relief schemes provide well-needed boost to Italy's
construction activity
The final element in the broad-based all-sector recovery at the
start of the third quarter was a sustained increase in construction
activity. At 55.8, the
Italy Construction Total Activity Index® pointed to a sixth
straight monthly rise in activity. The rate of expansion remained
sharp, despite easing further from May's 14-year high.
Much like the manufacturing sector, supply-side constraints
weighed on construction output in July. Lead times for inputs
lengthened to a near record degree amid reports of severe material
shortages, with constructors noting that delayed inputs had put the
brakes on some projects.
Client demand remained buoyant, however, in part due to the eco-
and super-bonus schemes introduced by the Italian government. The
incentives, launched first in 2020, provide tax relief of 110% for
expenses used to improve the energy efficiency of properties, and
have been widely attributed by survey respondents to strong demand
in the construction sector since their inception.
Residential construction has subsequently recorded the highest
Business Activity Index readings across the three monitored sectors
in all but one month since July 2020, highlighting the well-needed
boost these schemes have provided to Italian constructors.
Inflationary woes continue to stack up in
July
Supply-side constraints and material shortages have also led to
unprecedented inflationary pressures in recent months. The Italy
All-sector Input Prices Index hit a near 21-year high in July and
pointed to a severe rate of cost inflation, with rising input
prices recorded across each of the three monitored sectors.
Manufacturing saw the steepest increase in costs, followed by
construction, although both experienced a slight easing of
inflationary pressures from record highs recorded in June. Services
firms too have felt the impact of cost inflation, with supply-side
constraints, as well as rising wage bills, noted as drivers of the
fastest increase in operating expenses since September 2008 during
July.
As a result, both goods producers and service providers again
upped their output charges in July. The rise in the prices charged
for goods was markedly quicker, however, reflecting stronger cost
pressures, with factory gate charges rising at the fastest pace on
record and rapidly overall, with goods producers noting they were
attempting to retain profitability amid surging input costs.
Outlook remains bright for Italy
A common theme across each of the three sectors is optimism
towards activity over the next 12 months. The all-sector Future
Activity Index has been at or around series record highs in each
month since February. Excusing this period, the latest reading in
July was indicative of the strongest level of sentiment on record,
as companies remain confident of a sustained economic recovery
following the easing of lockdown measures.
Downside risks stem from the rising rate of COVID-19 Delta
variant infections across the globe, which dampened the global
economy in July and hit supply chains, although the Italian
government will be hopeful that so-called "COVID pass" restrictions
should limit infections and allow for a sustained economic recovery
free from stricter containment measures. Inflationary pressures and
worsening supply chain disruptions also pose downside risks,
particularly for manufacturing, with these pressures showing little
signs of relenting.
After a fall of 8.9% in 2020, latest IHS Markit estimates
suggest an annual rate of GDP growth of 5.9% in 2021, revised up
from an earlier estimate of 4.7%
amid the easing of COVID-19 restrictions, with PMI data from
July confirming further solid growth.
The PMIs for August will subsequently be assessed for further
signs of a sustained rebound across the private sector economy.
Lewis Cooper, Economist, IHS Markit
Tel: +44 1491 461019
lewis.cooper@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
