ROME, April 7 (Reuters) - Italy's service sector contracted in March for the first time in 16 months, a business survey showed on Tuesday, as domestic and foreign demand declined and costs surged in connection with the conflict in the Middle East.
S&P Global Markets' Services PMI Business Activity Index dropped steeply to 48.8 last month from 52.3 in February, marking the first month since November 2024 below the 50.0 threshold that separates growth from contraction.
The new business subindex dropped
to 48.3 from a previous 52.7, and the indicator for new export business also posted 48.3, down from 50.4.
Increased raw material, energy and fuel prices led to a jump in the indicator of input costs to 64.6, its highest level in more than three years.
"The Italian services economy showed signs of fragility in March, as challenging external conditions due to war in the Middle East weighed on demand and activity," said S&P Global Markets economist Eleanor Dennison.
"The sector contracted at the strongest pace in nearly two-and-a-half years, marking just the fourth monthly fall in output seen over this period," Dennison added.
The sister PMI survey for Italy's smaller manufacturing sector also showed input cost inflation accelerating in March to a 3-1/2-year high.
The composite PMI, combining manufacturing and services, fell in March to 49.2 from 52.2, signalling economic contraction for the first time since January 2025.
The Italian government this month is expected to cut its 2026 economic growth estimate to around 0.5% from the 0.7% projection it made last autumn.
(Reporting by Gavin Jones; Editing by Hugh Lawson)
