Italian manufacturing is suffering from a decline as 2024 comes to a close. Italian manufacturers have indicated a further decline in operating conditions as the year ends. Production cuts and new orders have contributed to a slowdown in industrial activity. Despite the decline, both output and new sales have continued to contract at a strong rate. At the same time, companies have cut back on employment, inventory levels and input purchases. Despite the challenges, companies appeared to be more optimistic about their outlook for the year ahead, with confidence at its highest level since August.
Manufacturers reported a slight rise in input prices, although the rate of increase was weak. Firms were finding it difficult to pass on higher costs to customers, prompting them to cut selling prices at a slower pace. Despite this, the Italian Manufacturing Purchasing Managers’ Index (PMI) remained at 46.2 in December, up slightly from 44.5 in November. However, this figure still points to a strong contraction in the manufacturing sector.
The contraction was further contributed to by a further decline in new orders, particularly from domestic and foreign markets. Manufacturers reported a moderate decline in new sales, but with demand remaining weak in key sectors.
such as automobiles, as well as weaker export demand. These challenges saw demand for Italian products abroad fall for the 21st consecutive month.
On the other hand, Italian manufacturers cut their production levels at the end of the year.
with companies reporting inventory reductions and input shortages as key factors driving the decline. Despite the easing, the pace of decline was faster than the annual rate for 2024.
Companies faced relatively muted cost pressures in December, despite input prices rising for the first time in three months. However, the increase in prices linked to higher material costs.
Companies continued to cut jobs in December
However, prices did not see significant changes, with the pace of selling price declines slowing compared to previous months. Analysts also noted that weak demand and mild cost pressures contributed to the gradual decline in prices.
Despite the decline in new orders, Italian companies were optimistic about their expectations for production over the coming year. In December, the confidence score in the industrial sector reached a four-month high, reflecting hopes for an improvement in international conditions and higher demand from key sectors.
But even with this optimism, companies continued to cut jobs in December. Despite the easing of restrictions in November, the rate of job losses remained the second-fastest since July 2020. However, some positive indicators, such as the exhaustion of backlogs, pointed to a gradual improvement in some areas.
On the other hand, demand for inputs continued to be weak at Italian manufacturers.
with a sharp monthly decline in input purchases. Improved supplier performance supported this trend, although delivery times did not improve significantly due to reports of material shortages and transportation delays.
In terms of inventories, the destocking activity continued, with stocks being exhausted at a faster rate in December than in the rest of the year. This was a direct result of the decline in new orders, which prompted companies to significantly reduce their stocks of purchases. In fact, Italian companies recorded the fastest rate of inventory reduction since June 1997.
Commenting on the PMI data, Jonas Veldhuizen, associate economist at Commerzbank Hamburg, said: “The Italian manufacturing sector remains in a difficult situation at the end of the year.” He added that the sector is facing major challenges due to weak demand from the eurozone, rising energy costs and major problems in the automotive sector.
Despite the difficulties, there are some signs of optimism
Veldhuizen confirmed that the PMI value increased slightly in December, but it has remained in recession since April 2024. However, he pointed out that the situation remained similar to previous months.
as new orders from domestic and foreign markets continued to decline, and production continued to decline.
He pointed out that this weakness in the manufacturing sector has a direct impact on the workforce. Although the company did not lay off many employees, reports indicate that temporary contracts have not been renewed, and the company has not replaced those who left, reflecting the continued pressure on employment in the sector.
As for output prices, Veldhuizen added that weak economic conditions are leading to a decrease in demand for intermediate goods, which contributes to lowering input costs. He expected that industrial companies will continue to deplete their inventories instead of building new ones, due to weak demand.
But despite all these difficulties, there were some signs of optimism. Veldhuizen indicated that companies are hoping for a recovery in global demand, along with the possibility of a rate cut by the European Central Bank.
which could contribute to stimulating economic activity in the industrial sector. There is also hope in the automotive sector after the meeting between Stellantis and Meloni government, where company pledged to invest 2 billion euros in Italy, which could boost production and help stimulate the economy.
The Italian government also plans to invest around 1 billion euros and ease some environmental regulations related to the “Green Deal,” which many see as one of the reasons behind the weakness of the Italian automotive industry. Despite these initiatives, caution remains justified due to the effects that global economic changes may have.
Overall, the Italian manufacturing sector faces significant challenges towards the end of 2024, as it suffers from a decline in orders.
