Italian manufacturing shrinks most in almost four years

Italian manufacturing shrank the most in almost four years in October, hinting at continued weakness after the economy failed to grow in the third quarter.

IHS Markit’s factory index dropped below the key 50 mark, output shrank for a third month and new orders fell. It was the first contraction since August 2016, as optimism took a knock from slower global demand and “worries over political stability”.

The figures are another blow to Italy after last quarter’s stagnation, led by industry. Amritpal Virdee, an economist at IHS Markit said the sector may drag down wider economic growth again this quarter.

Italy’s populist government says the slump makes their expansionary fiscal plan even more necessary, even as critics fret about the country’s huge debt pile.

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The administration intends to stick to its controversial budget plans despite criticism from the European Union and the country's central bank.

The Italian PMI report continues a run of disappointing figures in the euro area. Average growth in the region was slower than expected in the third quarter, and measures of confidence since then have slipped lower.

The euro-area manufacturing PMI slid to 52, below the initial estimate of 52.1 and the weakest reading in more than two years. The gauge for Germany worsened to 52.2, the lowest since May 2016. – Bloomberg