Italian Service Sector Growth Slows in July: Rising Cost Pressures

The Italian service sector growth continued into July, marking its seventh consecutive month of expansion. However, the momentum of this upturn showed signs of waning as activity, new business, and employment growth all decelerated.

According to data collected from July 11 to July 26, 2024, the HCOB Italy Services PMI Business Activity Index dropped from 53.7 in June to 51.7 in July. Despite the ongoing expansion, the latest data shows that the growth rate slowed to the lowest level recorded in the past six months and appears modest.

The survey indicated a continued rise in new business across the sector, driven by stronger demand conditions and new client acquisitions. Nevertheless, the pace of new business growth slowed for the fourth consecutive month, with new export sales also increasing at a slower and marginal rate.

Italian Service Sector Growth Slows in July Amid Rising Cost Pressures

Employment growth remained positive for the ninth month in a row, but the pace of job creation was the slowest since March. There was also evidence of spare capacity as the level of outstanding business decreased, following a trend observed since October of the previous year.

Cost pressures on service providers remained high, with input prices continuing to rise for the fiftieth consecutive month. Staffing, fuel, and raw material costs were the factors contributing to these pressures. In contrast, the rate of charge inflation moderated for the third consecutive month, reaching its lowest level since November of the previous year.

Business confidence, while still positive, showed its weakest level of the year thus far. Optimism was largely driven by expectations of new customer acquisitions, increased business inflows, and improved geopolitical conditions, despite the overall subdued sentiment.

In summary, while the Italian service sector continues to grow, the pace of this growth has moderated, reflecting ongoing cost pressures and a cautious outlook for the future.

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