Italian Manufacturing Fuels Hope of 2021 Economic Recovery

(Bloomberg) -- Italian manufacturing is picking up at the fastest pace in nearly three years, a bright spot in an economy that probably shrank close to 10% during the 2020 pandemic.

Factories, mostly located in the country's north, saw a sustained upturn in output in January, with orders expanding at a solid pace thanks to demand from Europe and North America, according to an IHS Markit survey. Surging sales prompted firms to add staff, though they also aggravated capacity pressure -- supply chains are under strain across much of the world.

“Goods producers remained confident of higher output over the coming year,” said Lewis Cooper, an economist at London-based IHS Markit. “The manufacturing sector remains in relatively good stead as we enter 2021, with the recovery gathering further momentum in spite of ‘red zone' restrictions in some areas.”

The latest update from purchasing managers offers a rare piece of good news after the collapse of Prime Minister Giuseppe Conte's government threatened to prolong the crisis. It comes a day before Italy -- Europe's original epicenter of the coronavirus outbreak and long one of its worst-performing economies -- reports fourth-quarter results.

The country's major peers did better than expected at the end of the year, with Germany and Spain even registering growth. That suggests Italy too might beat estimates after factories, an important part of the economy, managed to remain open during the latest lockdown. Economists surveyed by Bloomberg predict a quarterly contraction of 2.2%.

A Purchasing Managers' Index for Italian manufacturing climbed to 55.1 in January from 52.8 in December. A gauge for services is due on Wednesday and expected to remain firmly below the 50-mark that divides growth from contraction.

Separately, Italian unemployment data for December showed a slight uptick to 9%. The situation is a lot worse for the country's youngsters, with almost one in three looking for a job.

Momentum in euro-area manufacturing slowed at the start of the year, with the PMI slipping to 54.8 from 55.2. A measure for Switzerland unexpectedly increased to 59.4, with data showing the pandemic's second wave was having less of an effect on companies' investment plans than the first.

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