Italian Business Confidence Falls as Pessimism on Demand Grows
Italian business confidence unexpectedly fell in September on concern that a lack of consumer spending means Europe’s fourth-biggest economy will depend on foreign demand to emerge from the worst recession since World War II.
The Isae Institute’s manufacturing sentiment index fell to 74 from a revised 74.4 in August, the Rome-based research center said today. The September reading was lower than the median forecast of 75.8 in a Bloomberg News survey of 19 economists.
“Signs of improvement are visible mostly from foreign demand, while domestic demand remains weak,” said Marco Valli, an economist at UniCredit MIB in Milan. That’s “not unusual at the early stages of a recovery.”
Industrial production rose in July as the $2.1 trillion economy benefited from demand from France and Germany, its two biggest trading partners, which emerged from recession in the second quarter. Italy’s economy contracted for a fifth quarter in the three months through June as unemployment reached a 3 1/2-year high and consumer spending remained weak.
Manufacturers’ pessimism has been reflected in earnings forecasts. Clothesmaker Mariella Burani Fashion Group SpA expects second-half sales to fall 16 percent as demand for luxury apparel falters, Chief Executive Officer Gabriele Fontanesi said yesterday in an interview.
“In the first half, we saw a decline of 16 percent,” Fontanesi said. “In the second half, I don’t think it will move from that trend.”
Unemployment Grows
The number of Italians employed fell by 1.6 percent in the second quarter, the biggest drop since 1994, while the jobless rate rose to 7.4 percent, the highest since 2005. The rate may exceed 10 percent in 2010 should the recovery remain weak, the Organization for Economic Cooperation and Development said in a Sept. 16 report.
Italian businesses “see further job losses,” today’s report also said. A sub-index measuring expectations on employment fell to minus 19 in September from minus 16.
With Germany and France expanding, Europe’s slump is probably coming to an end, according to an index co-produced by the Bank of Italy and the Center for Economic Policy Research. The Eurocoin index measuring economic activity in the 16-nation euro region rose in September, the first positive reading in 15 months.
Signs of Improvement
On Sept. 22 the Italian government raised its forecast for this year’s economic contraction to 4.8 percent from 5.2 percent previously. The Finance Ministry said it expects the economy to expand 0.7 percent in 2010. While the economy will exit the recession by the end of this year, the recovery may not last throughout next year, Valli said.
Italian consumers were more optimistic about the economic outlook. Consumer confidence climbed this month to the highest in more than seven years as expectations of a return to economic growth after five quarterly contractions more than offset concern that unemployment will rise further.
Isae conducted its latest survey of 4,000 companies between Sept. 1 and Sept. 17.