Cost pressures in Italy’s services sector climbed to a 40-month high in May as the effects of the Middle East conflict intensified, according to the findings from a survey released on Wednesday.

S&P Global’s Purchasing Managers’ Index (PMI) for Italy’s services showed input cost inflation rising to 66.7 from 65.5 in April, its highest level since January 2023.

The headline PMI, a broader measure of services activity, slipped to 49.4, remaining below the 50.0 mark that separates expansion from contraction, for a third consecutive month, after a reading of 49.8 in April.

This compared with a Reuters news agency poll of 11 analysts, which had forecast a slightly weaker reading of 49.1.

Services cost pressures in the country could increase further if the war in the Middle East continues, while “glimmers of hope” featured in the report’s employment and future outlook indicators.

The employment subindex improved to 50.6, while the forward-looking measure of future activity rose to 59.5 last month, up from 50.3 and 59.1 respectively in April.

S&P Global’s related survey of Italy’s smaller manufacturing sector, released on Monday, showed input cost inflation accelerating for a fifth consecutive month in May, reaching a four-year high.

Meanwhile, the composite PMI, which combines manufacturing and services activity, remained broadly stable at 50.4 in May, compared with 50.5 in the previous month.

Prime Minister Giorgia Meloni’s government cut Italy’s economic growth forecasts in April, lowering projections to 0.6% for both this year and next, down from previous estimates of 0.7% and 0.8% respectively.

The government also expects growth of 0.8% in 2028, which would extend a run of six consecutive years with expansion remaining below 1%.