Italian Economy in the Doldrums

Despite the rhetoric from Berlusconi, the Italian economy is not in good health. I do not anticipate a rapid recovery, especially if ageing has any part of the story to tell. No young people, no immigrants, no future.........and watch out for the deflation knock.

Italian Prime Minister Silvio Berlusconi said he'd push for tax cuts next year even though Europe's fourth-biggest economy is sputtering this year and won't recover until 2004. Berlusconi, Italy's wealthiest man, said economic growth this year probably wouldn't exceed 1 percent, which is lower than the 1.1 percent growth forecast made by the government last month. That's hurting revenue and leaving little room for significant tax reductions, he said. ``We can't expect a recovery this year,'' Berlusconi said at a conference of the country's largest retailers' lobby, Confcommercio. ``We'll start to see a robust rebound from the beginning of next year.'' The premier was elected two years ago on the promise of delivering lower taxes. Most Italians and most businesses still haven't seen a reduction in the tax burden. At the same time, Standard & Poor's Corp. said it may lower the country's credit rating in the next couple years if Italy doesn't keep lowering its debt, Europe's largest. There were ``tough talks'' ongoing with Finance Minister Giulio Tremonti to reduce taxes ``even if not by much,'' Berlusconi said. Italy is trying to keep its budget deficit from widening this year even as tax revenue falls.

The April budget deficit more than doubled compared with the same month last year. The government predicts debt will decrease next year as a percentage of gross domestic product as long as a series of tax amnesties in effect this year bring in extra revenue. There haven't yet been any signs of recovery so far this year. April business confidence fell to its lowest in more than a year, and manufacturing probably declined during the first two months of the year. The retailers' lobby pushed the government to go forward with tax cuts and other changes to Italy's economic system such as more flexible labor laws and tax incentives for the tourism industry. Italy's economy was suffering from ``a type of economic SARS,'' said Sergio Bille, president of Confcommercio. Berlusconi said he was confident the economy was slowly picking up steam and vowed to carry through with his campaign promises. Commenting on the fact that consumer spending increased only 0.4 percent last year, Berlusconi quipped to the crowd of businessmen that they should send their wives on shopping sprees. ``My wife and her friends, who are terrible advisers, know exactly how to boost consumer spending,'' he said
Source: Bloomberg
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