The gloomy figures from the Purchasing Managers’ Index revealed factory activity weakened to 47.8 points in January, from 49.2 the month before. The decline marks its sharpest fall since 2013, pointing to ongoing weakness for Rome just one day after it was announced Italy had entered recession territory. Italy plunged into the red yesterday after a second consecutive quarter of decline was recorded for the last three months of 2018. The economy contract by 0.2 percent in October to December of last year, after a decrease of 0.1 percent in July to September.
Lyn Graham-Taylor, Rabobank rates strategist, said: “There is a lot of chat about the technical recession and what that means for budget deficit slippage.
“The PMI data adds to the economic gloom and has raised concern that the budget deficit will be worse than thought and that has spooked the market.”
Rome spent much of the latter half of 2018 at the centre of a bitter spat between European Union finance chiefs over its controversial budget.
The Italian government finally passed their monetary agreement at the end of December, averting a major showdown with the EU after being accused of breaching spending commitments.
Rome proposed a debt target of 2.4 percent of GDP but the EU would only allow 2.04 percent for 2019, falling to 1.8 percent next year and 1.5 percent in 2021.
This week saw business morale in Italy fall to its lowest level for more than two years, marking a fourth consecutive decline.
Business morale fell to 99.2 in January, its lowest level since August 2016, down from 99.7 in December, according to data from ISTAT.
At the same time, manufacturing confidence slipped to 102.1 in January, its worst reading since September 2016, down from 103.4 in December.
However consumer confidence rose in January to 114.0 from 113.2 the month before.
In other euro news, the economic situation in Germany darkened further as manufacturing contracted further, coming in at 49.7, below expectations of 49.9.
Things looked more positive for Spain as manufacturing rose to 52.4, up from 51.1 from the month before.
French manufacturing was recorded today at 51.2 for the last month.