Italy’s service sector is experiencing significant cost pressures, reaching a 40-month high in May, as the ongoing conflict in the Middle East continues to impact the economy. According to S&P Global’s Purchasing Managers’ Index (PMI), the measure of input cost inflation rose to 66.7 from 65.5 in April, marking the highest level since January 2023.

Service Sector Contraction

The broader gauge of services activity, the headline PMI, fell to 49.4, remaining below the 50.0 threshold that indicates growth. This marks the third consecutive month of contraction, following a reading of 49.8 in April. Analysts surveyed by Reuters had anticipated a slightly lower reading of 49.1.

S&P Global economist Eleanor Dennison noted that service cost pressures could escalate further if the conflict in the Middle East persists. However, there are ‘glimmers of hope’ in the report’s employment and future outlook indicators. The employment subindex increased to 50.6, and the gauge of future activity rose to 59.5 last month, up from 50.3 and 59.1 respectively in April.

Manufacturing Sector and Economic Outlook

Italy’s manufacturing sector is also facing challenges, with S&P Global’s sister survey showing input cost inflation accelerating for the fifth consecutive month in May, reaching a four-year high. The composite PMI, which combines manufacturing and services, remained virtually stable at 50.4, compared to 50.5 the previous month.

Prime Minister Giorgia Meloni’s government recently adjusted its economic growth forecast, reducing it to 0.6% for this year and next, down from previous targets of 0.7% and 0.8% respectively. The government projects a 0.8% growth rate for 2028, indicating six consecutive years of sub-1% growth.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.