Financial news

Italy manufacturing adds to gloom as recession fears mount

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Via Financial Times

Italy endured its 17th consecutive monthly decline in manufacturing activity in February, adding to signs that the outbreak of the deadly coronavirus is set to plunge the eurozone’s third-biggest economy into another recession.

With nearly 1,700 confirmed cases and 34 dead, Italy is home to one of the largest coronavirus outbreaks outside Asia. On Sunday, the Italian government announced plans to inject €3.6bn into the economy, which contracted 0.3 per cent in the final quarter of last year.

The disruption of the virus, which has caused 11 towns in the wealthy north of Italy to be placed in lockdown, closed many schools and cancelled sporting events, is expected to add to the woes of Italian manufacturers.

IHS Markit’s purchasing managers’ index for Italian manufacturing edged down by 0.2 points to 48.7 in February. A reading below 50 indicates that the majority of companies surveyed are reporting a shrinking of activity. The survey was completed on February 21, before the coronavirus outbreak intensified in Italy.

There was a similar contraction of factory activity in France, where the manufacturing PMI fell by 1.3 points to 49.8. However, manufacturing activity increased for the eurozone as a whole in February, as the PMI for the bloc rose by 1.3 points to 49.2.

Katharina Koenz, eurozone economist at Oxford Economics, said the PMI survey “feels particularly backward looking, telling us little about the near-term economic outlook.”

She continued: “On top of potential disruptions to supply chains caused by the outbreak overseas, eurozone domestic demand may suffer a severe short-term hit should the virus’s spread lead to large-scale containment measures and factory shutdowns.”

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Cerved, the Italian credit rating agency, said the risk of default among Italian companies would increase from an average of 4.9 per cent to 6.8 per cent if the coronavirus was contained in the first half of this year, or to 10.4 per cent if it lasted for the whole year. The textile industry, transportation and tourism are the worst hit sectors, Cerved said.

As the spread of the coronavirus to many European countries threatens to disrupt manufacturing supply chains, travel and tourism, economists have been slashing their forecasts for eurozone growth this year.

The European Central Bank is due to meet to discuss monetary policy next week, but its president Christine Lagarde told the Financial Times last week that it was too early to decide if the disease would cause a “long-lasting shock” that would hit inflation.

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