Italy's No-Growth Update

OK I'm on a roll, so I'm going to stick my neck out. This slide in the Italian confidence index apparently surprised the 'experts'. Well it shouldn't have surprised Fistful readers who have been following what I have been saying. Clearly these confidence indexes are not the last word in sliced bread. But they do mean something, and Germany's Ifo index just turned in another bad reading too.

Ever since Parmalat, I have been asking one simple question: will Italy ever grow again? Of course, the simple answer is possibly it will: never say never. But will it ever get back to vigorous growth: this I doubt. I am even half asking myself if we will see positive numbers in more than say 50% of the forthcoming quaters. Remember, if my demographic thesis has any predictive power it should be precisely here in Italy that the Titanic starts to take in water. Parmalat was simply the iceberg. Of course my thesis could always be wrong. Any takers?

Manufacturers' confidence in Italy suffered a larger-than-expected fall in February, in the latest sign that the economic recovery in Italy and the eurozone as a whole may not be as robust as once hoped.

In a survey released on Wednesday, the Italian research institute ISAE said its seasonally adjusted index of manufacturers' confidence had fallen to 92.6 from a revised 93.5 in January. Financial markets had expected a much smaller decline.

On Tuesday, ISAE reported that its core index of Italian consumer confidence had fallen to 99 in February from 100.6 in January. Consumer confidence is at its lowest levels since the index began in 1996.

The data follow preliminary official estimates of economic growth, according to which the Italian economy ground to a halt in the fourth quarter of 2003 after a brief return to growth in the third quarter. Growth in the whole of 2003 was estimated at 0.4 per cent, the same as in 2002 and slightly below the Italian treasury's expectations of 0.5 per cent.

The latest Italian figures were published one day after the German Ifo institute reported a surprise fall in its closely watched business confidence index, which dropped to 96.4 in February from 97.5 in January. It was the first fall in 10 months.

In a statement, ISAE said the fall in Italian manufacturing confidence had been caused by the stockpiling of finished products, which had returned to a higher level than normal.

Independent economists said the weak Italian data also reflected recent industrial unrest, the financial scandals at the Parmalat and Cirio food groups, and the euro's strength on foreign exchange markets, which is affecting Italian exporters' ability to sell products in the US in particular.

Fear of unemployment, and a perception that inflation is higher than official figures suggest, are other factors behind the low confidence of Italian consumers.
Source: Financial Times