The difficulties began with the energy crisis and are now continuing with a general drop in consumption, which is affecting many sectors
For months, the Italian industrial sector has been showing signs of a very marked decline in activity. Since August of last year, the industries have been having very serious difficulties, first due to the energy crisis which had made it really expensive to produce, then due to a significant slowdown in orders, linked to a generalized drop in consumption. This can be seen both from the data on industrial production, at its lowest since the pandemic, and from a whole series of indicators on managers’ expectations and confidence.
While during the autumn it was above all the activity of those supply chains that used a lot of energy that slowed down, now almost all industrial sectors are reducing production. The declines are not only in Italian industry, but there are signs of an even more serious crisis also in the rest of the European countries.
A rather reliable index on the state of the sector is the so-called PMI index. It is not a quantitative datum and is based on the surveys that the companies that elaborate it carry out in the industries: they interview the managers of the purchases of raw materials and semi-finished products necessary for the production. These people have a lot of control over the company’s production prospects because they have to order everything necessary for the processes: if the need for materials increases, it means that the production prospects are on the rise and therefore the general prospects are good; if the opposite occurs, it means that estimates for future production are declining, as are the prospects for the economy.
These surveys are then condensed into the PMI index, which is used by analysts to understand a bit what the wind is like between industries and what market conditions are like. By convention, if it is above 50 the economy is expected to expand, if it is below that threshold it is probably contracting.
For the manufacturing sector, the index has been below the 50-point threshold for some time and the latest figure represents a low not seen since the pandemic. In the Eurozone, the index fell to 43.4 points in June (from 44.8 in May). The Italian index is a little above the average (43.8 points) but still significantly down on May, when it was 45.9. Things are much worse in Germany, where the index fell to 40.6 points from 43.2 in May and where the economy has already been in a recession since last autumn.
Unlike Germany and the Eurozone in general, the Italian economy has withstood the difficulties of last autumn better, including the severe energy crisis and the increase in interest rates by the European Central Bank to combat inflation, which has the objective is precisely to slow down the economy to stop the increase in prices. As the Eurozone and Germany entered a recession, Italy’s Gross Domestic Product grew by 0.6 percent in the first quarter of the year. However, it seems that the dynamics that have caused a crisis in other countries are also arriving in Italy and this can be seen from a widespread drop in consumption, business confidence that is declining and above all from industrial production that has been declining for months.
The latest data on industrial production relates to month of Aprilwhen the index fell 1.9 percent from the previous month and 7.2 percent from April 2022. This was not an isolated episode, because in reality the index has been falling since last summer.
However, not all industries are declining to the same extent, as an analysis by notes lavoce.info. The most notable drops are in the most energy-intensive sectors: in the paper sector, production fell by 12.4 percent compared to a year ago; in that of metallurgy, 9.8 per cent; and in that of minerals by 10.5 per cent. Although the cost of energy has returned to much lower levels than in recent months, these sectors are still struggling to recover.
Also there production in the construction sector in April it showed a rather marked reduction: it decreased by 3.8 percent compared to the previous month and by 6.3 compared to April 2022. In this sector, Italy had experienced a significant boost in the last two years thanks to the Superbonus , the recovery of public investments and the conditions of access to mortgages which up until a year ago were much more favourable. These declines are therefore particularly sharp also because the sector comes from a decidedly prosperous period.
There are also substantial drops in those sectors that had had an above-average turnover during the pandemic period, which are therefore now experiencing a return in consumption to ordinary levels, given that they have normalized again with the end of the restrictions consumption habits. The furniture, household appliances and information technology sectors have a declining production.
However, these sectors are also affected by a drop in demand due to inflation and the general increase in the cost of living. The production of food and beverage products is affected above all by this and is 4 percent lower than a year ago.
There are some sectors which, on the contrary, see an increase in production, such as the automotive, pharmaceutical and clothing sectors. However, these are isolated cases: according to the latest ISTAT data, in April industrial production was lower in 80 percent of the sectors, a sign that the crisis is now widespread.