Italy Industrial Output March 2008

Italian industrial production fell again in March for the second consecutive month. Output was down 0.2 percent from February, when it also fell by the same amount, the national statistics office said in Rome today.

On a year on year and working day corrected basis (Easter was in March this year) output was down by 2.5%. Production of Italian consumer goods fell 0.7 percent from February and the output of durable goods like refrigerators declined 2.8 percent. Non-durable goods dropped 0.7 percent. The only gain came in energy related goods, which rose 2.3 percent.




As forecast on this blog last month, a significant part of the decline in output was probably caused by the plunge in car production, which fell 9.2 percent from a year earlier on a non-adjusted basis. Istat did not give car output figures compared with the previous month.

Also, and for those of you who are interested in this kind of thing, the manufacturing PMI seems to be giving a reasonable good first pass forecast of what is actually happening, and the index showed strongish contraction again in April, so the agony seems set to continue, at least for the time being.



The IMF are forecasting that Italy's economy will expand by a mere 0.3 percent this year, or a fifth of last year's pace. We haven't see any recent GDP data yet, but looking at the data we do have this would seem to be a not unreasonable guesstimate at this point.

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.

Italy Manufacturing PMI April 2008

European manufacturing growth slowed for a third month in April as cooling global demand and a stronger euro took their toll on export orders. Royal Bank of Scotland Group Plc's manufacturing index fell to 50.7 from 52 in March, according to NTC Economics Ltd., which carries out the survey of purchasing managers. That's less than an initial April 23 estimate of 50.8 and the lowest since August 2005. A reading above 50 indicates growth.

The final RBS/NTC Eurozone Manufacturing PMI came in at 50.7 in April, down from 52.0 in March and slightly below the earlier flash estimate of 50.8. The fall in the PMI was the largest for six months and took the index to its lowest since August 2005.

National trends among the big-four euro nations varied markedly again in April, as did production by sector, with consumer goods producers reporting a survey record decline in output.

The PMI (Purchasing Managers' Index) was particularly weak, registering the first decline in new orders since May 2005 (in line with the flash reading). New export orders fell by marginally more than indicated by the flash reading, also declining for the first time since May 2005 due to softer economic growth in key foreign markets and the strong euro.

Among the big-four euro countries, only Germany recorded an increase in new orders, though the rise was the smallest for three months. This deterioration was primarily the result of a substantial easing in growth of new export orders at German manufacturers. Spain and Italy both saw new orders fall at the steepest rates since December 2001.

In a sign of broad-based weakness of production to come in future months, new orders for consumer, intermediate and investment goods (such as plant and machinery) all fell in April, albeit only marginally in the case of investment goods. Consumer goods producers saw the sharpest monthly drop in new orders in the survey’s ten-year history, in part reflecting lower levels of new export orders.

``Germany will do better than average,'' said Dominic Bryant, an economist at BNP Paribas in London, in a research note to investors. ``At the other end of the spectrum, Italy and, in particular Spain, will have a very tough year with growth well below trend.''

Italy's Manufacturing PMI


Italy's manufacturing sector contracted for a second month in April, posting its weakest performance since May 2005 and casting a deepening shadow over growth prospects, accoring to the NTC/ADACI PMI survey.

The NTC Purchasing Managers Index fell to 48.2 from March's 49.4, sinking further below the 50 divide between growth and contraction. The survey is the latest in a string of negative data for the euro zone's third largest economy, underscoring the tough task awaiting incoming Prime Minister Silvio Berlusconi after his victory in last month's general election.

"There are really no indications of a turnaround, with backlogs of work still falling and new orders the weakest since December 2001," said Chris Williamson, chief economist at NTC Research which compiles the data.
"The big area of weakness in Italy is in the domestic economy, and within that the consumer sector where things are going form bad to worse."

The International Monetary Fund forecasts the Italian economy will grow just 0.3 percent this year, and Williamson said the PMI data pointed to a contraction of gross domestic product in the first and second quarters, and possibly beyond.

"These PMI figures are very much signs of recession," he said, forecasting that the rate of job losses is likely to pick up, hitting consumer confidence further. Italy's 1.5 percent 2007 growth rate was little more than half the euro zone average, maintaining a trend of Italian underperformance that has persisted for at least a decade.

The survey showed employment levels fell for the third month running and the manufacturing output sub-index pointed to a fall in output for the first time since May 2005. Input price inflation eased significantly to a four-month low but, with an index level of 64.2, remained at a high level by historical standards.

EU Economic Sentiment Index April 2008

The European Commission’s eurozone “economic sentiment” index which fell sharply from 99.6 in March to 97.1 in April – the lowest level since August 2005. With the indicator regarded as good guide to growth trends, the unexpectedly steep decline pointed to a marked deceleration in economic activity.

Still, eurozone countries show varying performances. Economic sentiment in Spain, which is at risk of a serious house price correction, has fallen to the lowest level since late 1993. But sentiment in Germany and France remains relatively robust – falling to the lowest levels since February 2006 and December 2005 respectively.




As can be seen from the above chart, Italy's economy continues - like Venice - to sink steadily, while the two eurozone economies which had the strongest housing booms head steadilyoff the cliff, with Spain having poll position, and by quite a long margin