Italian Consumer Confidence April 2008

Italian consumer confidence rose slightly (but ever so slightly, see chart below) in April - holding near its lowest level in almost four years as an economic slowdown prompts households to cut back on spending. The Rome-based Isae Institute's index, based on a survey of 2,000 families, rose to 99.8 from a 99.0 last month. The March reading was the lowest since May 2004.




Rising food costs and oil prices near the $120 a barrel mark are stifling consumer spending as wage growth stagnates. Even with economic growth slowing, higher energy and commodity prices have pushed the inflation rate to its highest in at least 11 years, further sapping optimism.



The Italian economy may have already slipped into recession in the first quarter - or even in the last quarter of 2007 . Italy has suffered three recessions between 2001 and 2005. According to the IMF Italy will grow by 0.3 percent this year, half the pace of the U.S. and a fraction of the 1.2 percent growth rate anticipated for the entire euro region. Making this the 12th year in a row that Italian growth has been below the average rate for the euro-region.



Italian retail sales fell at the fastest pace in four years in March as campaigning for national elections drew to a close and added to concern about the economic outlook, the Bloomberg purchasing managers index showed.

Italian Retail Sales February 2008

Ok. I have to admit, the Italian National Statistics Office are not exactly my favourite institution. The most obvious recent issue I have with them is about why they have been (still) unable to supply us with comparable data Italian GDP for the last quarter of 2007 (oh, I know, the methodological revision and all that, the one everyone else seems to have already implemented without too much difficulty. My list of beefs would be a quite a long one, and indeed I would say the only EU country statistics website with which ISTAT compares favourably would be Bulgaria (and that really is saying something), while I much prefer the site's of some EU applicatnt members like Turkey (Turkstat) or even developing world emerging economies like Chile. My latest issue is with the retail sales data, which is listed month after month over at Eurostat with a "c" (which in theory means confidential, but afaiac could be read as "we can't or we won't give you comparable data", in either case the result is most lamentable). And the reason why this is the case is reasonably evident - since ISTAT (for whatever reason) don't publish constant price data for retail sales. The data we receive are normally at current prices which means they don't allow for the impact of inflation, which means that more money may be spent but the actual volume of sales may contract. And this explains a lot.

Take the latest announcement on retail sales, as published in the Wall Street Journal:

In Italy, the national statistics office Istat said retail sales, which aren't adjusted for inflation, rose 2.7% on the year in February after a 1.0% rise in January, while month-on-month they rose a seasonally adjusted 0.3% after a 0.2% rise in January. The statistics agency said sharp rises in fuel and commodity prices were behind the rise.

Now this gives the impression that somehow or other sales are rising - by 2.7% year on year, which wouldn't be bad. Indeed if we went back over the months we would get a chart for 2006 and 2007 that looked something like this:



Which is far from dynamic, but does give the impression that there is some life left in Italian retail activity. But if we stop for a minute and think about the fact that Italian CPI inflation was running at 3.1% in February we would discover (as a rough approximation, subtracting the CPI from the non inflation adjusted sales data) that Italian retail sales actually contracted by 0.4% year on year in February, and we would get a chart going back over the last couple of years that looked something like this:



which shows the near constant contraction which has been going on in the Italian retail sector despite the increase in employment and the decline in unemployment. Looking at things this way also solves another mystery: the apparent disparity between the ISTAT retail sales data (as commented on in the economic press) and the retail sales purchasing managers index, which regularly shows sales contracting.

Alitalia Share Trading Suspended (again)

The death agony of Alitalia seems to drag on and on, with shares plunging again earlier today after the Air France-KLM Group yesterday withdrew its takeover bid for the state-controlled carrier, which is losing more than 1 million euros a day.

Bids for Alitalia shares showed the stock fell 11 percent to 55 euro cents in Milan before trading was finally suspended. Alitalia shares have fallen 33 percent in the past year as the government has struggled to find a buyer for its 49.9 percent stake. Trading was halted pending a statement from Alitalia.

Air France late yesterday said in a press release that its bid was ``no longer valid,'' leaving Alitalia's future uncertain. The carrier had less than 200 million euros in cash and credit at the end of March and has said that it needs 750 million euros by the end of June to stay in business.

The sale to Air France, backed by the outgoing government of Prime Minister Romano Prodi, was complicated by the April 13- 14 election won by billionaire media magnate Silvio Berlusconi. He called the Air France offer ``arrogant'' and pledged to put together an Italian bid. So far no Italian offer has emerged. Indeed the outgoing Finance Minister Tommaso Padoa-Schioppa told the Italian parliament on April 2 that in his opinion Berlusconi's Italian bid didn't exist and that the only alternative to the Air France offer was for the Italian carrier to seek protection from creditors.


Meantime outgoing Prime Minister Romani Prodi is discussing Alitalia's financial condition with Italy's finance and transport ministers, according to an official in the prime minister's office. The European Commission has already warned Italy's government that any cash for Alitalia must be offered under market conditions, and the credit ratings agencies will be vigilantly following any new committments of cash from the Italian exchequer.

Berlusconi will ultimately be responsible for the "ultimate solution" to the Alitalia problem, although his new government isn't likely to be in place until the middle of next month.

The premier-elect has said there may still be interest in Alitalia among airlines that lost out to Air France in a yearlong search for a buyer. Berlusconi said on April 18 after meeting with Russian President Vladimir Putin in Sardinia that the two of them had discussed the possibility of OAO Aeroflot participating in a bid for the airline. Berlusconi has also mentioned Lufthansa as another possible suitor.

Intesa Sanpaolo SpA, the bank which was financing an offer for Alitalia from Italian airline Air One SpA, indicated that it might consider a new bid. ``Right now there is nothing on the table and it's too early to say if there will be,'' Chief Executive Officer Corrado Passera told Ansa today.

Meanwhile the Italian civil aviation authority ENAC have said that they will be forced to retract Alitalia SpA's license if the airline can't offer guarantees for the future.

``In the absence of liquidity for at least 12 months, or a financial situation incompatible with the commitments taken by the airline, Alitalia certainly can't continue as though nothing has happened,'' Chairman Vito Riggio told la Repubblica in an interview

ENAC plans to call a meeting ``in the coming hours'' with Alitalia managers, Riggio said.

Update Wednesday 23 April


The outgoing Italian government has today decided to provide Alitalia with a 300 million-euro emergency loan. The loan was "to prevent the unprofitable airline from collapsing and to give investors time to prepare bids", Prime Minister-elect Silvio Berlusconi is quoted as saying.

``The government had no choice,'' Berlusconi said in an interview on New Space radio. ``Had they not done it, Alitalia would have gone into bankruptcy and that isn't acceptable.''

The decision was taken at a late cabinet meeting presided over by outgoing centre-left Prime Minister Romano Prodi, who will hand over to Silvio Berlusconi in mid-May following last week's elections. Addressing a news conference, Prodi blamed "excessive interference during the election campaign by specific political parties and numerous difficulties posed by the unions" for Air France-KLM's withdrawal.

Outgoing Economy Minister Tommaso Padoa-Schioppa said the decision was taken in highly unusual circumstances - in the interregnum between governments - and that he was "waiting to see" how the EU would respond.

Though Berlusconi pledged to organize a new offer, no Italian bidder has yet emerged for Alitalia, which is burning through its cash reserves at a rate of more than 3 million euros a day and had less than 200 million euros in cash and credit at the end of March. The company's management said it needs at least 750 million euros of new investment by the middle of this year to stay in business.

The government loan may run into opposition from European Union regulators. Alitalia is not eligible for further state aid after winning EU approval for a public bailout in 2001, Transport Commissioner Jacques Barrot said today in Strasbourg. To convince the EU not to designate the financing as state aid, the Italian government will need to prove that the loan was made under market conditions. It's too soon to tell whether the funding meets that test, Barrot said.

Update 2: 25 April 2008

The European Union has sent a letter to the Italian government giving Italy 10 days to respond to its concerns that the planned 300 million-euro loan to Alitalia is in breach of EU rules which forbid a second government bailout of the unprofitable national carrier during a period of ten years following an initial rescue. Alitalia won EU permission to receive Italian state aid in 2001, making it ineligible for further handouts until 2011 under European rules that restrict government cash injections in unprofitable businesses.

The Italian government said on its Web site that it will respond to the letter, which was sent yesterday, within the deadline. Prime Minister-elect Silvio Berlusconi said at a rally last night in Rome that EU regulators ``are making things difficult.''

``I'm not worried,'' Berlusconi said. ``The EU should help with just causes and not create difficulties.''

Italy needs to prove that the loan was offered on commercial terms in order to win approval from the European Commission. The regulatory warning threatens to tie up Alitalia in a months-long battle over the legality of the aid, provoking lawsuits by competitors and hampering Italy's bid to find a buyer for the airline. Ryanair Holdings Plc, Europe's biggest discount airline, has already said it plans to file a formal complaint about the Italian loan.

Update 5 May 2008

The European Union's Commissioner responsable for transport stepped up threats to reject Italy's 300 million-euro rescue loan for Alitalia SpA, making it more difficult to sell the airline as things stand. EU Transport Commissioner Jacques Barrot said the financial weakness of Alitalia raises doubts about the legality of the loan.

``If a loan is made to a company that is absolutely not solvent, that poses legal questions,'' Barrot told reporters today in Brussels. The Italian government has until May 19 to provide details of the financing, he said.

Barrot's warning threatens to embroil Alitalia in a months- long battle over the legality of the aid, undermining Italy's bid to find a buyer for the country's biggest airline. Premier- elect Silvio Berlusconi has pledged to put together a group of Italian investors to buy Alitalia.

The saga continues.