(Bloomberg) -- Italian economic activity dropped to a 2024 low as an improvement in the manufacturing sector wasn’t enough to compensate a slowdown in services.
S&P Global’s composite Purchasing Managers’ Index fell to 50.3 in July from 51.3 a month earlier, according to data published Monday. While that’s above the 50 level that signals growth, it’s the poorest reading since December and worse than the 50.9 that economists had predicted in a Bloomberg survey.
Data last week revealed that the Italian economy grew just 0.2% in the second quarter, decelerating slightly as net exports and industry acted as drags. Analysts see it picking up again to 0.3% this quarter and the period kicked off with a stronger than anticipated reading for industrial production in July.
A breakdown of the country’s PMI data show that the services sector’s upswing lost momentum in July. Manufacturing numbers published last week already revealed a fourth month of contraction, though it was less severe than in June.
“The service sector remains the main engine of the Italian economy, yet recent indicators suggest potential headwinds,” said Tariq Kamal Chaudhry, an economist at Hamburg Commercial Bank. “Service providers continue to grapple with sharply rising input costs, which are outpacing output price hikes. According to surveyed companies, this increase reflects higher labor, fuel, and material costs.”
Prime Minister Giorgia Meloni and Finance Minister Giancarlo Giorgetti have successfully kept the economy stable since taking power in 2022, though they’re struggling with high debt and deficit numbers that limit their ability to cut taxes and meet promises to help the country’s less affluent.
The economy may still have sufficient momentum to reach Giorgetti’s growth target of 1% for this year, with the Bank of Italy slightly less optimistic at 0.9%.
Part of the problem is due to a pandemic-era home renovation tax incentive that’s been phased out but is still weighing on the deficit, opening Italy up for criticism from the European Union, which has started an excessive deficit procedure against it.
On the bright side, the country is still in the process of spending its EU pandemic recovery fund cash, which should help compensate a more restrictive fiscal stance.
--With assistance from Joel Rinneby and Mark Evans.
(Updates with chart)
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