Exports boost Spain and Italy’s manufacturing activity

Manufacturing activity in Spain and Italy grew in the final weeks of 2020 thanks to strong export demand which helped limit the economic impact of the fresh upsurge in coronavirus cases, according to a widely-watched survey of businesses.

Activity in Spain returned to growth in December while Italy recorded its seventh consecutive month of expansion, according to the IHS Markit manufacturing purchasing managers’ index.

Spain’s PMI rose to 51, from 49.8 in the previous month. A reading of more than 50 indicates that the majority of businesses surveyed reported an increase in activity compared with the previous month. The same measure for Italy rose to 52.8, from 51.5.

Across the eurozone, the final manufacturing reading for December was marginally lower than initial estimates at 55.2, up from 53.8 in November but still the highest level since May 2018. The improvement was driven by strong foreign demand, reflecting the economic recovery across much of Asia where the virus is largely under control.

Chris Williamson, chief business economist at IHS Markit, said the bloc’s manufacturing industry had ended 2020 on “an encouragingly strong note” and as a consequence the bloc’s economy “looks set to be hit by the pandemic in the fourth quarter far less than the unprecedented decline in the second quarter, thanks to the resilience of manufacturing”.

The readings demonstrate the resilience of the bloc’s manufacturing sector, in contrast to its dominant services industry which is suffering from virus-related restrictions on activity and uncertainty over the pace and spread of nations’ vaccination programmes.

Confidence among eurozone manufacturers about the year ahead has reached its highest level in nearly three years as hopes that a vaccine could restore normal business conditions by the end of the year fuelled optimism. Italian manufacturers were among the most confident, and reported rising employment, as did manufacturers in France.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the figures were “solid” and “consistent with a resilient eurozone manufacturing sector, in contrast to sustained weakness in services due to restrictions to keep the pandemic under control”.

But many eurozone manufacturers in the PMI survey reported significant supply chain disruption and Katharina Koenz, economist at Oxford Economics, said that “in the short term the health situation and the risk of extended containment measures cloud the outlook”.