Recession looms as Italy factories falter; Swedish PMI lowest since early 2016

Swedish PMI drops to lowest since early 2016 as headwinds mount


FRANKFURT • Italy’s manufacturing sector shrank for a third straight month in the latest sign that Europe’s third-largest economy is on the brink of yet another recession.

IHS Markit’s gauge of factory activity came in at 49.2 for December. While that’s better than the 48.4 forecast by economists, it’s still below 50 — the dividing line between growth and contraction — and measures of employment and business confidence worsened.

The country was rocked in 2018 by the populist government’s heavy spending plans, which sparked a spat with the European Union and pushed up bond yields. The standoff was resolved at the final hour but unease remains amid a euro-area economic slowdown, less monetary support from the European Central Bank and US-led protectionism.

Italy’s poor performance in December and the first contraction in French manufacturing since 2016 — amid protests by the so-called Yellow Vests — weighed on momentum in the euro-area. The Purchasing Managers’ Index (PMI) for the region declined to its lowest in just over four years, with business confidence reaching its worst since 2012.

The IHS Markit report for Italy showed business sentiment at the weakest in six years and employment growth at the slowest in four years.

New orders slid for a fifth month, prompting manufacturers to scale back production.

It’s a “worrying end to the year for Italian manufacturers”, said Andrew Harker, associate director at IHS Markit. “There appears little sense of optimism that the current soft patch will come to an end in the near future.”

Italy Politics
The uneasy coalition between the anti-migration League, which is strongest in the business- rich north, and the anti-establishment Five Star Movement, with its electoral base in the depressed south, makes further political uncertainty possible in 2019.

In his year-end address, Italian President Sergio Mattarella took the government to task for ramming spending plans through Parliament, urging both parties to ensure adequate debate in the future.

Italy’s woes highlight how the eurozone — which marked the 20th anniversary of the single currency on Tuesday — is still struggling to deliver convergence.

The nation’s economy has persistently lagged behind the rest of the bloc and shrank 0.1% in the third quarter. A contraction in the final three months of the year would confirm the nation’s third recession since the global financial crisis a decade ago.

Sweden Output Slows
Meanwhile, Sweden’s manufacturing activity slowed sharply at the end of 2018, falling to the lowest level since early 2016 as production and hiring cooled.

The PMI fell to 52 in December from 55.4 in November, according to Swedbank/Silf. That’s the lowest level since February 2016.

Reading adds to evidence largest Nordic economy is cooling and comes after the Swedish central bank last month raised interest rates for the first time in seven years. Swedish PMI is often seen as a leading indicator for a broader slowdown in European manufacturing. Sub-indexes for orders, production and employment all declined.

Broad Swedish Slowdown
December reading shows a “broad slowdown”, said Jorgen Kennemar, an economist at Swedbank AB who’s in charge of analysis of the index.

“Monthly readings should, however, be interpreted carefully and the next few months will show where the economy is heading.”

Nordea economist Torbjorn Isaksson wrote in a note that “the only positive news” related to the PMI reading was that the orders-to inventory ratio as well as the Organisation for Economic Cooperation and Development leading indicator “don’t suggest any further downturn in the PMI in the near term”.

“On top of the weakening housing market and a likely slowdown in private consumption, this is a sign that Sweden’s traditional growth motor is slowing down,” Danske Bank A/S economist Michael Grahn said on Twitter. Swedish krona slid 0.3% to 10.20 per euro as of 8:52am local time yesterday.