Line chart of manufacturing purchasing managers

Spanish and Italian manufacturing activity picks up after virus hit

Activity in Spain’s manufacturing sector picked up by more than expected in July, an early indication that the country’s economy may be experiencing the start of a rebound.

Data released last week indicated Spain was the European economy hardest hit by the pandemic in the three months to June.

The IHS Markit purchasing managers’ index for Spanish manufacturing rose to 53.5 in July, from 49.0 a month earlier — above the 50 threshold which indicates the majority of business managers reported an improvement in activity compared with the previous month. The reading was higher than the 52.0 expected by economists polled by Reuters.

Spain’s gross domestic product contracted by 22 per cent in the first six months of this year, figures published on Friday showed, wiping out all the economic gains made in the seven years since its last recession. The drop was more severe than the fall in output experienced by other big European economies, and more than a million people lost their jobs in the process. 

But July’s manufacturing sentiment data pointed to an improvement in both domestic and international demand, although optimism about the future remained subdued and further job losses were reported.

“All in all, the recovery in the manufacturing sector is good news, but a further decline in employment will hamper the overall recovery of the economy,” said Steven Trypsteen, an economist at ING.

Italy’s manufacturing sector also recorded an improvement in July, with its PMI rising to 51.9, from 47.5 in June — its first expansion in almost two years. But foreign demand remained weak and there was evidence to suggest factories were not operating at full capacity. 

“Overall, (Italy’s) July data appear to suggest the sector is on its way to recovery, with output expectations also remaining positive,” said Lewis Cooper, economist at IHS Markit. “But, after such an extreme blow, there is masses of ground to make up. It is essential that demand conditions continue to improve, and any reintroduction of lockdown measures . . . has the potential to derail the recovery.”

The figures were broadly in line with the overall eurozone position; upwardly revised data on Monday confirmed that the bloc experienced its first improvement in manufacturing activity since January 2019.

Germany’s July manufacturing PMI was also revised upwards on Monday from 50.0 to 51.0 — its first positive reading since the end of 2018. The improvement suggested the sector had begun to recover from the contraction caused first by global trade tensions and then by the pandemic.

Spain’s tourist visits were down 95 per cent year on year in June, separate figures published on Monday showed. The country has since seen a fresh wave of coronavirus cases, placing more pressure on an economy which relies heavily on its tourism industry.

“If the situation deteriorates further and new lockdown measures are needed to combat the pandemic, then a contracting manufacturing sector is again a possibility,” said Mr Trypsteen.