Paris asks me in comments if I could say something about Italian industrial production. Basically production in August was up significantly (month on month 1.2 percent), but this followed a 0.3% month on month fall in July, so the actual increase is not as large as it seems at first sight. The August reading is undoubtedly in line with the September confidence index reading, but again the big question is, where is all this leading?
The EU commission only today has revised down its first quarter 2007 growth estimate:
The European Commission said the economy of the dozen euro nations may not grow at all in the first quarter of next year amid higher interest rates and a slowdown in the U.S.
The forecast of stagnation is the bottom end of the commission's range of between zero and 0.5 percent growth for the first three months of 2007, which is down from an August estimate of between 0.2 percent and 0.8 percent. The European Union's executive arm also lowered its prediction for growth in the current quarter to about 0.5 percent.
and please note this:
``The data is further suggestion that after reasonable growth in the second half of this year there may be a more meaningful slump at the start of next year,'' said Ed Teather, an economist at UBS AG in London.
Part of the reason for the mid-summer surge in activity in the eurozone was an increase in construction activity in Germany which was brought forward to avoid the forthcoming 3% increase in VAT.
The August data is now somewhat old, and all the signs are that the Eurozone has peaked. This situation will only be made worse by the ECB's obsession with raising interest rates, counter cyclically. The future is additionally complicated by the fact that during the good years (2001- 2006) several major European economies used pro-cyclical fiscal policy, and they will now have to move in the direction of tightening at just the time when an expansionary fiscal policy is just what is called for. As you make your bed, so shall you lie, as they say.
Also it is important to take into account what is happening in the services sector, where again a slowdown is also making its presence felt:
Euro zone services growth slipped to a 10-month low in September, a survey showed on Wednesday, but analysts said this won't stop the European Central Bank raising interest rates this week and again later this year.
The RBS/NTC Research survey of 2,000 companies, ranging from financial services to hotels, showed business in the euro zone's dominant services sector remained robust, but eased for the third consecutive month.
The euro zone services activity index fell to 56.7 in September from an upwardly-revised 57.4, still well above the 50 mark that separates growth from contraction. Economists had expected a stable reading of 57.0.
That left the index at its lowest level since November 2005 and puts it sharply lower than a World Cup-related high of 60.7 in June, with a slowing in input cost rises and the rate of growth in new business.
It is important here to remember that in a developed economy services make up around 70% of total economic activity (with industry accounting for around 25% and agriculture around 5%). So services are really a much more important indicator than industrial activity. Clearly services activity is still growing, but the rate of expansion is slowing.
All in all it is important to remember that one swallow doesn't make a summer, and above all that Rome certainly wasn't built in a day.
Italy Economy Real Time Data Charts
Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Italy related comment. He also maintains a collection of constantly updated Italy economy charts together with short text updates on a Storify dedicated page Italy - Lost in Stagnation?