Italian Industry Slump Worsens View of Economy in Recession

(Bloomberg) -- Italy’s recession isn’t seeing any signs of a turnaround at the start of the year, as a drop in manufacturing orders weighed on output and forced companies to cut jobs.

Manufacturing conditions worsened in January to the greatest extent in almost six years, a purchasing managers’ index showed on Friday. At 47.8, it’s well below the 50 level that marks the crossover between expansion and contraction.

Growth in the euro area as a whole slowed, led by a contraction in Germany, the region’s biggest economy, a separate PMI report showed.

IHS Markit, which publishes the survey, said the deterioration in Italy was broad-based across all monitored sectors, and prompted firms to reduce headcount for the first time in four years by not replacing voluntary leavers or temporary contracts. The data come a day after a report confirmed Italy’s economy shrank for a second quarter in the last three months of 2018, the technical definition of a recession.

Still, the nation’s main business lobby Confindustria sounded less pessimistic than IHS Markit about the prospects for industrial output. In a report on Thursday it estimated a 0.1 percent rise in production in January following a 0.4 percent increase in December. Italy’s statistics office will release the report for production in the last month of 2018 on Feb. 8.

While Italy is leading Europe’s economic slowdown, cracks have appeared across the region. Germany’s carmakers are struggling with weak demand in China, and French consumer spending suffered from violent protests against the government.

In Italy, factory orders contracted for a sixth month in January, and companies lowered their purchasing activity.

“There was a bright spot, though, with a significant weakening in input price inflation, which enabled manufacturers to lower selling prices for the first time in 27 months in an effort to boost sales,” said Amritpal Virdee, an economist at IHS Markit.

--With assistance from Lorenzo Totaro and Kevin Costelloe.

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow

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