Italy: Restrictions Illustrate Divergences In Confidence Indicators

The manufacturing/services dichotomy was still in place in March, and will be at the heart of a 1Q21 GDP contraction. While the key to the consumption recovery is closely tied to future progress on vaccinations, Italian manufacturers/builders seem to be looking beyond it, possibly eyeing the flow of demand which will come with the recovery plan.

Restrictions are weighing differently on sectors

The path to recovery continues to be dominated by the pattern of restrictions in place. The batch of confidence data released earlier today provides clear evidence of this.

In manufacturing and construction, unaffected by current restrictions, confidence posted relevant gains in March, reaching back to levels last seen in the summer of 2019. Where restrictions are still biting, confidence stepped back, softly in services, and more markedly in retail, where small retailers are suffering the most.  

Intermediate and investment goods producers are driving manufacturing confidence gains

The manufacturing confidence breakdown is showing that the improvement was driven by gains among intermediate and investment goods producers, while those in the consumer goods business were less confident than in February. This is encouraging good news, as it suggests that Italian manufacturers remain well anchored in global value chains and that some form of stockpiling is in the making to satisfy growing demand for investment goods. To be sure, the latest Bank of Italy bank lending survey was still flagging that in 1Q21 the main reason for borrowing was to fund working capital and to restructure/renegotiate existing loans, but things might be changing as we get closer to the implementation of the recovery and resilience plan, which is expected to start over 3Q21.

And tourism demand concerns is a drag on services

The services breakdown provides fresh evidence that the tourism-related services suffered a dip, dragged down by worsening expectations on orders, the inevitable result of mobility restrictions which, de facto, canceled the upcoming Easter Holiday opportunity. On the other hand, confidence posted a substantial gain among those supplying services to businesses, a likely reflection of the good demand from manufacturers.

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Disclosure: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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