Valentina Romei

Italy’s services sector activity contracted less than expected in January, as coronavirus restrictions continued to weigh on the country’s hard-hit economy.

The IHS Markit purchasing managers’ index for Italian services rose to 44.7 in January from 39.7 of the previous month, based on businesses’ views of the development of their activity.

The reading was much better than the 39.5 forecast by economists polled by Reuters, but was still below the 50 mark which indicates a majority of businesses reporting a contraction.

Lewis Cooper, economist at IHS Markit, said: “Italy’s service sector remained mired in a downturn into 2021, although the latest contraction in services activity was much softer than those recorded in the closing months of last year.”

Output was limited by tight coronavirus restrictions, as well as weak demand with new orders continuing to fall.

Italian service providers faced rising costs while continuing to provide discounts to customers to stimulate sales. In January, they trimmed their staffing levels again.

On Tuesday, official statistics revealed that Italy’s economy shrank the most among the eurozone major economies in the final three months of 2020 on a quarterly basis, reflecting a long period of tough tier-based regional restrictions.

A slower vaccine rollout than in the UK clouds Italy’s economic recovery. However, Covid-19 infections are falling and Italy’s president will meet Mario Draghi, former president of the European Central Bank, later on Wednesday to ask him to form a new national unity government, possibly avoiding elections and instability.

The easing of Italy’s service sector downturn contributed to pushing the final reading for the eurozone to 45.4, marginally up from 45 in initial estimates. At 47.8, the eurozone composite index was also better than previously thought.

Chris Williamson, chief business economist at IHS Markit, said: “A contraction of GDP therefore looks likely in the first quarter, though on current trends this should be modest in comparison to the falls seen in the first half of 2020.”

Countries ranked by composite PMI:

– Germany: 50.8, 7-month low
– France: 47.7, 2-month low
– Italy: 47.2, 3-month high
– Spain: 43.2, 2-month low
– Ireland: 40.3, 8-month low