Italian and Spanish manufacturers have staved off the coronavirus pandemic resurgence by reporting continuous improvement in activity in October, according to a widely watched company survey.
The IHS Markit Flash Manufacturing Purchasing Managers ‘Index exceeded economists’ expectations in both Italy and Spain, fueled by rising exports and solid domestic demand. This was shown by the data published on Monday.
The Italian index rose to a 31-month high of 53.8 in October from 53.2 in the previous month. The Spanish index hit a three-month high of 52.5 after 50.8 in the previous month.
A value above the 50 mark indicates that the majority of companies reported an increase in activity compared to the previous month.
IHS Markit has also revised its production indices for Germany, France and the Eurozone compared to the first flash readings published two weeks ago. As a result, the Eurozone manufacturing PMI hit a 27-month high of 54.8 in October, compared with 53.7 in the previous month.
The survey results were in stark contrast to the European service sector, which has been much harder hit by measures to contain the virus. This underlines that the manufacturers’ supply chains have remained relatively unscathed and that exports, especially to Asia, are picking up again.
“While the reintroduction of containment measures has certainly weakened the outlook for manufacturing since the survey was conducted, we expect its direct impact on the sector to be less than it was in the spring,” said Daniela Ordonez, economist at Oxford Economics.
Unlike the initial lockdowns in the spring, many factories have so far continued to operate after introducing sanitary measures to protect workers, despite renewed social restrictions aimed at slowing the spread of the virus.
“It looks good for manufacturers,” said Marco Valli, economist at the Italian bank UniCredit. “I think it will go on, but the problem is [that] With these soft lockdowns, you will see services being impacted, and I would be surprised if manufacturing were to completely decouple. “
Italian manufacturers saw steady production growth due to the acceleration in incoming orders from domestic and foreign customers.
“The improvement in overseas demand has continued to fuel the sector as export orders have grown at the fastest rate since early 2018,” said Lewis Cooper, economist at IHS Markit.
However, Italian factories reported that lead times – the time it took to complete the production process – were the longest since May. IHS Markit said the delays were due to increased demand for inputs, logistical issues and rising cost burdens, adding that “the magnitude of the disruption was much less severe than it was at the height of the spring pandemic”.
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“With the rise in Covid-19 cases and the introduction of new restrictions, the recovery may stall if factories are down or if customer demand drops significantly, as it did in the spring,” Cooper said.
Although new restrictions to contain a second wave of coronavirus infections are less stringent, they are expected to cause yet another economic downturn, which the government in Rome predicts will be 9 percent smaller than last year.
The Italian economy recovered from its pandemic-triggered recession in the first half of this year – when factories, schools and non-essential stores closed – with growth of 16.1 percent in the third quarter.
Spanish manufacturers reported their fourth consecutive month of increasing production, with growth reaching its highest level since July. However, unlike Italy, the surge in orders was not strong enough to keep up with production, resulting in an increase in inventories.
Paul Smith, Director of Economics at IHS Markit, said: “October saw a gratifying acceleration in manufacturing output growth, although the rise in new orders lagged production. [Spanish] The manufacturers built up stocks and were able to clear up any outstanding work. “