Italy Services PMI April 2008

Eurozone service sector growth held steady at a slightly slower pace in April as faster growth in Germany contrasted with weakness elsewhere; Spain in particular stood out and reported record job cuts.

The RBS/NTC Eurozone Services Business Activity Index rose from 51.6 in March to 52.0 in April, coming in slightly above the earlier flash estimate of 51.8. However, the rise still indicated only a very modest acceleration in growth, with the rate of increase remaining weak by historical standards of the survey (and only slightly above the average reading for Q1, which had been the weakest quarter since Q2 2003).

Italy


Italian service sector activity appears to have contracted for the fifth month running in April, although by somewhat less than expected. The NTC Research Purchasing Managers' Index rose to 49.8 from 48.8 in March. The survey's sub-index on new business rose to 48.5 from 48.3, its sixth consecutive month of contraction.

"April figures painted a slightly more positive picture of the Italian services economy, although activity and new orders continued to fall, reflecting a continued difficult economic environment," said Verity Howell, an economist at NTC Economics which compiles the data.

NTC's chief economist Chris Williamson said the data provided a glimmer of hope that the services PMI may be on an uptrend after February's decade low of 47.2. "I remain sceptical until I see the numbers actually come up above 50. We're at 49.8, we're nearly there, but I have a suspicion that what we're seeing is a dead cat bounce in some respects, that things could come down further," he said.

So Chris Williamson can see some "bounce" and I am sure he is right, Italy has bounced back a little, and this is not surprising, since really Italian growth is congenitally low, and Italy is most definitely not on a boom-bust dynamic. Italy is simply following the low growth trajectory which will now have lead it in and out of recession for the fourth time since the start of the century if the present "suspicion of recession" is confirmed. And Italy can now hover around between zero and one percent growth for some time to come, and the only really big issue here is how the government debt dynamic can be sustained in this way which is why I expect the issue to move over to a tussle with the ratings agencies at some point. We need to be clear here : Italy is going to go off a cliff or anything like that.



Spain is another story, in Spain the economy shows all the signs of going straight off the proverbial cliff and anyone interested in this topic should go over and take a look at the latest data on my Spain Economy Watch (see sidebar).


According to the NTC survey, the hotels and restaurant sector was the only segment to record any growth in new business in April. Transport and storage posted the biggest shrinkage in new business. This reflected the weakness in Italian manufacturing where the April PMI index showed a contraction for the second month running, reaching its lowest point since May 2005. The services survey also revealed nervousness about the future, with the business expectations index only just above January's all-time low.

"They are obviously pessimistic," said Williamson. "I think going forward you will see further pressure to cut back expenditure and employment levels and that's going to feed through to growth."

The data also revealed an easing in inflationary pressures with the input prices index down to 64.2 from March's 66.4. The prices charged index fell to 51.7 from 52.1.