January 6, 2014 / 8:48 AM / 4 years ago

Italy service sector shrinks for second month in Dec - PMI

ROME (Reuters) - Italy’s service sector contracted for the second month running in December, a survey showed on Monday, evidence the economy is still struggling to emerge from its worst recession since World War Two.

Inmates working as waiters await diners at an Italian federal prison in the Tuscan town of Volterra May 16, 2008. REUTERS/Chris Helgren

The Markit/ADACI Business Activity Index, which covers companies from cafes to insurers, rose to 47.9 from 47.2 but stayed well below the 50 line that divides growth from contraction.

The result was below an average forecast in a Reuters survey of four economists which had pointed to a marginal increase to 48.7. The index had risen above 50 in September and October.

Italy’s economy, the euro zone’s third-biggest, has not grown since the middle of 2011 and posted zero growth in the third quarter of 2013.

Most analysts had been expecting a return to modest expansion in the fourth quarter, but Markit economist Phil Smith said the underperformance in services was cancelling out improvements in manufacturing.

“The service sector looks to have weighed on GDP in the final quarter but, thanks to a robust expansion in manufacturing output, the overall trend in economic activity is broadly flat,” he said.

The survey’s new business sub-index rose to 49.1 from 47.0 in November, while service providers shed jobs slightly faster than in the previous month, extending a 2 1/2-year slide.

“Further notable job shedding at services firms ... places upward pressure on an already high unemployment rate, which will do nothing to ease social tensions,” Smith said.

With unemployment hovering at record-high levels and the government focused on keeping strained public finances under control, Italians staged a long series of sometimes violent street protests in December.

After passing a mildly expansionary budget last month, Prime Minister Enrico Letta has said he expects the economy to improve in 2014, and he has pledged to press ahead with a series of badly needed reforms.

Services make up around 70 percent of Italian gross domestic product, including public services not covered in the survey.

The poll findings contrast with a sister survey for the manufacturing sector last week which showed activity expanding at its fastest pace since April 2011.

The survey’s business expectations sub-index gained in December, while prices charged declined for the 29th straight month.

REUTERS POLL: Consensus: 48.7 (Range: 47.5-49.0, 4 participants)

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Reporting by Steve Scherer; Editing by Catherine Evans

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