(Bloomberg) -- Private-sector activity in Italy contracted for the first time this year as the services sector failed to fully compensate for deteriorating activity at factories.
S&P’s composite Purchasing Managers’ Index for September dropped to 49.7 — below the 50 mark that separates expansion from contraction, data Thursday showed. The manufacturing gauge slid to 48.3, remaining under 50 for a sixth month, while services dipped to 50.5, despite the tourism industry offering support during summer.
“This trend seems to be in line with recent developments in struggling peers Germany and France,” said Jonas Feldhusen, an economist at Hamburg Commercial Bank. “New business opportunities, both at the total and international level, are struggling to gain momentum in Italy’s service sector.”
The euro-zone’s No. 3 economy expanded by just 0.2% in the second quarter -suggesting that the government’s 2024 growth target of about 1% may be unrealistic, as many analysts think. That could prove to be a headache for Prime Minister Giorgia Meloni, who needs to pay down Italy’s mammoth debt and keep expensive promises to voters, including a wage tax cut of €10 billion.
Meloni’s team is scheduled to present its 2025 budget later this month. It will be a delicate balancing act to both please voters and the European Union, which has placed Italy on a special monitoring regime for its high deficit and debt.
The government confirmed last week that it plans to narrow the fiscal shortfall to 2.8% of gross domestic product within two years - below the EU’s 3% limit. Markets reacted favorably to the efforts, with the spread between Italian 10-year bonds over their German equivalent — a closely-watched gauge of risk — staying relatively stable. It’s been hovering around 130 basis points - near its lowest levels over recent months.
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