Italian Private Sector Expansion Surges to 11-Month High in April: Services Lead, Manufacturing Lags

The Italian private sector recorded its strongest expansion in 11 months in April 2025, driven by a resilient services sector that offset lingering manufacturing headwinds. According to the latest data from the Hamburg Commercial Bank (HCOB), the composite PMI rose to 52.1—a significant jump from March’s 50.5—marking the fastest pace of growth since May 2024. While services thrived, manufacturing’s recovery remained fragile, constrained by trade-related uncertainties and weak demand.

Services Sector: Growth Engine Amid Uncertainty

The services sector surged to the forefront, with its PMI climbing to 52.9—exceeding expectations and marking its third consecutive month of expansion. Key drivers included strong demand for tourism and hospitality, which fueled hiring and new business volumes. According to Dr. Cyrus de la Rubia of HCOB, service providers “hired more people, especially on permanent contracts,” reflecting sustained confidence in demand. New orders grew at their sharpest rate in 13 months, signaling a cyclical upturn.

However, business confidence dipped to its lowest level in four-and-a-half years, driven by concerns over U.S.-EU tariff disputes and geopolitical instability. This tension highlights a critical divide: while services are buoyant, underlying risks threaten to curtail momentum.

Manufacturing: Stabilizing but Not Recovering

The manufacturing sector’s PMI improved to 49.3 in April—the softest contraction in eight months—but remained below the 50 expansion threshold. New orders fell at the slowest pace in 13 months, and export orders declined only modestly, easing fears of a sharp downturn. Yet, the sector continues to grapple with cost pressures: input prices rose due to higher raw material costs, while output prices hit a two-year high, squeezing profit margins.

Employment in manufacturing fell for the seventh straight month, though at a slower rate. Firms reduced inventories further to cut costs amid weak demand.

Export Performance: A Mixed Picture

Exports remain a key vulnerability. While global manufacturing export orders fell to their steepest decline in 20 months, the Eurozone (including Italy) saw its smallest contraction in three years. This moderation was partly due to front-loading of orders ahead of potential tariff hikes. However, Italian manufacturers cited lingering uncertainty over U.S. tariffs and EU countermeasures as a major drag.

Export orders in manufacturing declined again in April, but at the slowest pace since June 2024, aligning with the PMI’s 11-month high. This suggests a tentative stabilization, though the sector remains in contraction.

Cost Pressures and Profit Margins

Cost challenges persist. Services companies faced lower input cost increases compared to earlier months, but their ability to raise prices also slowed, squeezing margins. Manufacturing, meanwhile, grappled with rising raw material costs and passed these onto customers, resulting in the highest output price inflation in two years.

Outlook: Services as the Stabilizer, Manufacturing as the Risk

The Bank of Italy forecasts 0.5% GDP growth for 2025, with services offsetting manufacturing’s struggles. However, the latter’s recovery hinges on resolving trade tensions. HCOB analysts predict manufacturing PMI will dip further to 48.5 by year-end before rebounding to 52.9 in 2026, suggesting a delayed recovery.

Conclusion

Italy’s private sector expansion in April reflects a clear dichotomy: services are booming, while manufacturing remains hamstrung by external pressures. Investors should prioritize sectors tied to tourism and hospitality, which are benefiting from strong demand and hiring trends. However, manufacturing’s reliance on global trade stability means caution is warranted.

The composite PMI of 52.1 underscores the economy’s resilience, but risks loom large. Tariff disputes and geopolitical tensions could derail progress, particularly in manufacturing. For now, services are the engine of growth, but sustained recovery will require resolution of trade conflicts—a factor that remains far from certain.

In summary, Italy’s economy is on an uneven path: services are leading the way, but manufacturing’s fragility means investors must tread carefully, balancing opportunistic bets in tourism with a wary eye on global trade dynamics.