Bloomberg reports that the Italian government has trimmed by more than half its forecast for growth in what is Europe's fourth-biggest economy this year, thus joining other EU nations in limiting expectations for an early recovery. The Italian Ministry of Finance said in its quarterly bulletin that it expects the economy to expand 1.1 percent in 2003, less than last September's prediction of 2.3 percent. Much of the slowdown is due to growth problems in a European market which is hurting Italian exports. The projection of the Italian government matches that of the International Monetary Fund, which lowered on April 9 its forecast for the euro region for the second time this year. Europe's three biggest economies, Germany, France and the U.K., had already reduced their growth forecasts for 2003.

Optimism among Italian consumers fell for the third time in four months on concern the U.S. war on Iraq may aggravate an economic slowdown in Europe's fourth-biggest economy and fuel unemployment. The state-funded Isae institute's index of household confidence, one of the first monthly gauges of European consumer optimism, dropped to 106.8 from 107.7 in February, leaving the measure near January's six-year low of 106.2. ``My fear is that even if the war comes to a brief end we're in for a decade of terrorist fear not knowing where the next threat is coming from,'' said Maurizio Piglione, chief executive of Saiag SpA, a maker of household goods such as freezer bags, ironing board covers and aluminum foil.

The start of the war may exacerbate the drop in consumer spending that contributed to Italy's $1.3 trillion economy growing at its slowest rate in almost a decade last year. Production may be disrupted in coming months as Italy's union mobilize workers for further protests against the conflict. Any rebound will also be delayed by slowing growth in Italy's biggest trading partners, France and Germany. Italy's three-biggest unions called for a national, two-hour work stoppage today to be followed by protests across the country. More than 1.5 million Italians demonstrated against the war in Rome on Feb. 15, the biggest of the protests held that day around the world.

``If things were bad before they've just got a whole lot worse,'' said Antonia Gozzi, 34, a music composer who took part in the anti-war protests in Rome last month. ``A spending spree is the last thing on my mind.'' Consumers have been cutting back across Europe. Retail sales in the U.K. unexpectedly fell in February for a second month, the government said today. Optimism among consumers in Belgium, the only other EU country to already report on confidence, fell in March to a six-year low. Optimism in the 12-nations sharing the euro fell to the lowest in more than six years in February.

The European Commission Monday cut by almost half its prediction for 2003 growth to 1 percent for the dozen nation sharing the euro. The U.S.-led war on Iraq may further curtail growth in the $7 trillion economy, the commission said. ``Everything has come to a halt, complete stagnation,'' said Massimo Turconi, chief executive officer at Ratti SpA, an Italian maker of luxury silk scarves founded in 1945, at the end of the Second World War. ``I don't see a pickup in sight until the second half of 2004.'' Germany barely averted a recession in the fourth quarter as gross domestic product stayed unchanged. French consumer confidence slumped to a five-year low. Italy and its two-largest trading partners make up about 70 percent of the gross domestic product of the nations sharing the euro. The yield on Italy's benchmark 4 3/4 percent 10-year bond maturing in 2013 fell 4 basis points to 4.36 percent. A basis point is 0.01 percentage point. Americans share the European gloom. U.S. consumer confidence tumbled this month to the lowest in more than a decade, a survey by the University of Michigan showed on Friday. Italian consumers are also concerned that the slowing growth will lead more companies to cut jobs, boosting unemployment for the first time in five years. The country's 8.9 percent jobless rate is the third highest among the Group of Seven industrialized nations.

Fiat SpA and Pirelli SpA, two of Italy's biggest manufacturers, have already announced they will axe about 10,000 jobs. This month a spate of Italian insurers, banks and retailers have reported falling sales and some are resorting to firings to curb costs. Assicurazioni Generali SpA, Europe's fourth-largest insurer, posted its first full-year loss since the 1970s and is cutting 2,800 jobs. Ducati Motor Holding SpA, the Italian maker of Testastretta motorcycles, said net income tumbled 39 percent. Gucci Group NV Chief Executive Officer Domenico De Sole said fears of war are damaging luxury goods sales. Isae's survey of 2,000 consumers showed that the percentage of Italians who think unemployment will increase rose to 42 percent from 40 percent last month. ``Consumers have been in a crisis for a long time,'' said Marco Venturi, president of Italy's second-largest retailers' group, Confesercenti, which represents 240,000 retailers, hotels and tour operators. ``The government needs to intervene urgently to stimulate consumption and growth.'' Italian confidence has also been hurt by rising consumer prices, which have remained above the ECB's 2 percent ceiling even as economic growth slowed. Consumer prices in March probably rose 0.2 percent to leave the inflation rate at 2.6 percent the same as the EU-harmonized rate for Italy the previous month, a survey of 12 of Italy's largest cities is expected to show today, economists said.
Source: Bloomberg
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