The growth of the economy is not driven by industry but by services
The comment by Paolo Mameli, senior economist of Intesa Sanpaolo's studies and research department, on the industrial production figure in Italy in July
Industrial production unexpectedly rose by + 0.8% mom in July, after rebounding by + 1.1% mom in June (revised up by one tenth). Output continues to expand broadly on an annual basis, although slowing down to + 7% from the previous + 13.8% (based on data adjusted for calendar effects).
During the month, growth was driven by investment goods, intermediate goods and non-durable consumer goods (+ 1.9%, + 1.4% and + 1.3% m / m, respectively), while there was a partial correction for energy and the second consecutive monthly decline for durable goods. On an annual basis, all macro-sectors are expanding, with the sole exception of energy products.
Manufacturing production grew by as much as + 1.2% m / m, mainly driven by machinery and equipment (+ 2.7% m / m): a sign that the investment cycle has now started, thanks to the positive outlook on demand , the favorable financing conditions and the ample liquidity available to companies. However, some manufacturing sectors recorded a correction in the month: these are mainly refining, pharmaceuticals, electrical equipment, means of transport, and the metallurgical sector. On an annual basis, the only sectors in decline are pharmaceuticals (-1.9%) and (outside manufacturing) mining (-2.8%).
Industrial production had already returned to above pre-Covid levels in June, and in July it consolidated the progress of the previous month (+ 1.5% compared to February 2020). Output is on course for another increase in the third quarter, albeit less marked than that seen in the first two quarters of the year.
Business confidence surveys confirm that the industry remains in an expansionary phase, even if a moderate deceleration is noted compared to the pace of the first part of the year. The difficulties in procuring materials, and the increase in the prices of raw materials, seem to have acquired greater importance in recent months as an obstacle to the production activity of companies.
In any case, the growth of the economy today is driven not by industry but by services, which still have ample room for recovery after the dramatic effects of the pandemic: while industry has already recovered to pre-crisis levels, the added value in services in the 2nd quarter of 2021 it remained 5% below the levels at the end of 2019 (-9.4% in the transport, accommodation and catering trade, -14.4% in other service activities). Even if the slowdown trend in industry were to accentuate, due to the aforementioned bottlenecks on the supply side, the contribution of services appears to be such at this stage that it more than compensates for any lower prospective dynamism of manufacturing and construction.
Precisely because of a still very strong contribution from services (whose added value grew by 2.9% qoq in the 2nd quarter, compared to 2.7% of GDP), we think that economic activity may have maintained a very sustained growth rate in the summer quarter (in the range 1.5-2% qoq) before slowing down (just under 1% qoq) in the final part of the year. Our scenario reflects an evolution of the fourth pandemic wave not such as to induce the authorities to restrictive measures comparable to those seen during the previous waves (also due to the advanced stage of the vaccination campaign).
As a result, we are revising our growth forecasts for Italian GDP upwards, now seen to rebound at a pace of at least 5.7% this year (after the -8.9% recorded last year). In our view, the risks with respect to this growth projection are now upwards.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/crescita-economia-industria-servizi/ on Fri, 10 Sep 2021 11:38:51 +0000.