July 15, 2019 / 12:11 AM / a month ago

Italy business outlook improves sharply in second quarter, survey shows

ROME (Reuters) - Italy’s business outlook improved more sharply than that of any other country in the four months to June, according to a global survey released on Monday which offers signs of hope for the country’s struggling economy.

The survey, conducted three times a year by IHS Markit, showed Italy’s business confidence at a one-year high, with optimism regarding future activity, employment and capital expenditure all rising from the previous survey in February.

The euro zone’s third largest economy eked out growth of 0.1% in the first quarter, emerging from a shallow recession in the second half of last year, and national statistics bureau ISTAT has warned the second quarter may see another contraction.

However, the IHS Market survey showed the net balance of companies forecasting an increase in activity in the coming 12 months at +29%, up from +23% in February and the highest since June 2018.

“This improvement since the opening quarter is the greatest among all the countries for which comparable data are available,” said IHS Markit, which surveyed some 12,000 businesses in 17 major countries and regions between June 12-25.

The improvement in confidence in Italy was broad-based. Manufacturers’ net activity balance of +28 was the highest since February 2018, while service providers posted a balance of +30, which was a one-year high.

Service companies cited expectations of improved internal demand, more public investment and better utilisation of technology as reasons for confidence, while manufacturers expected a recovery in foreign demand and a lower tax burden.

Conversely, political instability and an increasing global trend towards trade protectionism were reported by both manufacturers and services as the main threats to the outlook.

While the Italian economy has been broadly stagnant since the second quarter of 2018, a recent plunge in borrowing costs may improve credit conditions and sentiment.

Italian bond yields fell this month to their lowest since 2016, thanks to a deal with the European Commission, which averted a clash over Italy’s public finances, and to expectations that the ECB will retain its ultra-dovish stance under its incoming president, Christine Lagarde.

The labour market has also showed signs of improvement. The jobless rate fell to a 7-year low of 9.9% in May, as some 67,000 jobs were created, while the overall employment rate rose to 59%, its highest level on record.

Editing by Gareth Jones

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