Italy’s HCOB Composite PMI rose to 52.1 in April 2025 from 50.5 in March, marking the strongest pace of private sector expansion in nearly a year and reinforcing signs that the Italian economy is regaining momentum.
Italian private sector growth hits 11-month high
The improvement was largely driven by a strong rebound in the services sector, which posted a PMI reading of 52.9—its best since mid-2023—benefiting from renewed domestic demand and recovering consumer sentiment. While the manufacturing sector remained in contraction territory at 49.3, the pace of decline eased notably, suggesting the sector may be approaching a turning point after months of sluggish activity.
A key positive development was the return of new business growth, with the rate of expansion reaching a 12-month high. This surge was fueled by stronger client demand, particularly in services, and a modest pick-up in export orders, hinting at some resilience despite global trade frictions. However, the underlying labor market response remained subdued. Job creation was minimal, as many firms continued to operate with spare capacity and remained hesitant to commit to new hiring in the face of an uncertain macroeconomic environment.
Backlogs of work continue to decline
Backlogs of work continued to decline—a trend now extending into its third consecutive year—pointing to a persistent gap between incoming demand and operational capacity. While this may be seen as a sign of efficiency, it also reflects the broader challenge of sustaining growth without stronger employment and investment.
Inflationary dynamics offered some relief to both businesses and consumers. Input cost inflation slowed to its lowest level of the year, helped by easing price pressures in both the services and manufacturing sectors. Overall selling price inflation softened as well, although manufacturers bucked the trend by raising output prices at the fastest pace in over two years. This reflects some margin recovery after a prolonged period of cost pressures but also signals ongoing price sensitivity in downstream supply chains.
Confidence worsens
Despite the solid performance in April, confidence among Italian businesses deteriorated. Sentiment regarding future activity dropped to its lowest point since late 2021, underscoring the fragility of the recovery. Firms cited rising geopolitical risks, uncertain fiscal policy at home, and the potential fallout from ongoing global trade disputes—particularly involving the US and key European partners—as reasons for increased caution.
Altogether, while the latest data suggests that Italy’s private sector is gaining some traction, the outlook remains clouded by external headwinds and lingering structural weaknesses. Sustaining this recovery will likely depend on stabilizing external demand, reviving investment, and improving labor market conditions in the months ahead.
