Italian Industrial Production Increased Again In March

The seasonally adjusted Italian industrial production index increased by 0.7% on the month (+0.2% in February), the second consecutive monthly gain and much better than expected. The working day-adjusted measure increased by 1.5% on the year (from +0.4% in February). From an industry grouping point of view, we note a solid gain in the production of capital goods, followed at a distance by intermediate goods, while the production of consumer goods posted the fourth consecutive monthly decline, more marked for durable goods.

Sector-wise, within the manufacturing domain, transport equipment was the best performing sector in the first quarter, followed by electronic equipment; at the other end of the spectrum, pharmaceuticals posted the fastest quarterly contraction, followed by chemicals and refined oil products.

The March monthly gain provided new hard evidence in support of the slightly stronger-than-expected 0.2% gain posted by preliminary GDP data in the first quarter. Interestingly, the acceleration in production happened when the war in the Middle East was already putting upward pressure on oil and gas prices, but not yet on supply chains.

Looking ahead, available evidence from business surveys looks mixed. On the one hand, the April manufacturing PMI posted a surprising monthly gain, as firms reportedly brought forward some purchases ahead of expected price increases and shortages. On the other hand, the business confidence survey signalled a slowdown, driven by soft-ish order books, with stable output.

The lingering deadlock in the Strait of Hormuz and its impact on energy prices and supply chains looks set to weigh on the Italian economy throughout most of the second quarter, even in the case of positive developments on the negotiation front. With consumption most exposed to this risk through the purchasing power channel, manufacturing will unlikely be unaffected; still, it might prove relatively resilient in the second quarter. When combined with the expected deterioration in services, this could well end up in flat GDP growth for the quarter.

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