Italy Retail Sales April 2008 and June PMI

Italian retail sales were stationary in April on March in seasonally adjusted current price terms (ie without allowing for inflation) according to the latest data from ISTAT, and were down 2.3% year on year. When allowing for inflation (3.6% in March) they were down a total of 5.9% in real terms.

And by June the situation had deteriorated even further according to the latest Purchasing Managers Index (PMI) reading. Italian retail sales declined for the 16th consecutive month as rising oil and food costs eroded consumers' disposable income, the Bloomberg purchasing managers index showed. The seasonally adjusted retail sales index fell to 36.3 from 38.8 in May. The index is based on a survey of 440 executives compiled for Bloomberg LP by Markit Economics. A reading below 50 indicates a contraction.




Obviously the continuing inflation and negative consumer sentiment are affecting sales. Italian consumer confidence fell more than economists expected in June to near a two-year low, because of rising prices, according to a June 24 report.



More than 55 percent of the Italian retailers surveyed said they missed their June sales target, and profit margins tightened as they tried to lure customers with discounts. About 38 percent reported paying higher wholesale prices for the goods, they sell, according to the report.

The decline in Italy was mirrored by falling sales in France and Germany, pushing down the European retail sales index to 44 from 53.1. That was the second-biggest drop in the survey's four 1/2-year history.

Italy Q1 2008 GDP Detailed Results (Updated)

Well I've finally found the time to look through the detailed ISTAT data on Q1 2008. In the first place GDP was up by a seasonally adjusted 0.5% on the last quarter of 2007, and by 0.3% on Q1 2007.



Imports were down 0.5% on the quarter, while exports were up 1.4% As a result the balance between imports and exports changed, and this is undoubtedly one of the main factors in the "bounce back" in the first quarter from the 0.4% contraction registered in Q4 2007.





Total consumption was up q-o-q 0.2% (all data seasonally adjusted), but it is the composition here that matters, since private household consumption was only up 0.1% (after falling 0.4% q-o-q in Q4 2007) while government consumption and transfers were up 0.4% (that's a 1.6% annual rate in an economy that is hardly growing). It is hard to see how this rate of increase in government consumption can be maintained and the deficit be reduced at one and the same time.



Gross Fixed Capital Formation was down q-o-q 0.2%, of which equipment was stationary, transport equipment was down 3.4% and construction was up 0.3%.



However year on year machinery and equipment (ie investment and renewal) was down 0.9% following an annual 2.5% drop in the previous quarter. That's why all those business confidence readings are so important, since in many ways the bottom has all but fallen out of Italian investment in machinery and equipment over the last nine months, and to get this item moving again we are going to need to see a revival in confidence, something which is unlikely to appear over any immediate horizon.



Italian business confidence dropped to its lowest level in almost three years in June as slowing economic growth, rising energy costs and a stronger euro all weighed on orders. The Isae Institute's business confidence index dropped to 87.1 from a revised 89.4 in May. That is the lowest reading since July 2005.



So basically the Italian economy got what little growth it had in Q1 2008 from a rise in government spending and transfers and an improvement in the international trading position (better exports and imports down). Maintaining the former is inconsistent with the objective of reducing the fiscal deficit, and the latter will be hard to sustain in we are now entering a collective Eurozone slowdown. Investment is unlikely to pick up substantially until the mood and outlook change and consumer consumption is not going to change greatly in coming months, in particular with rising unemployment, and increasing costs of food and energy. So basically be prepared for a number of quarters which look, at best, pretty much like the two we have just been through.


Update

I'm preparing a piece for RGE Europe EconMonitor for Monday, and I'm making some charts, so I thought a couple of them might be useful to accompany this post.

Here's the long term GDP growth chart.





The big question facing structural macro economic theory is, I think, to explain why the long term private consumption chart for Italy looks the way it does. The 1993 collapse isn't the problem. The question is why does it appear to go in waves, which each wave cycle running at a lower level. This is what I would agrue to be the population ageing factor. You know, the one that virtually everyone else suggests doesn't exist. But if this isn't about population ageing and life cycle dynamics then I find it hard to understand why we should be seeing such similar phenomenon from this point of view in the leading "agers": Germany, Italy and Japan.

Employment and Unemployment in Italy Q1 2008

Italy's unemployment rate rose slightly in the first quarter of 2008, reaching its highest level in over a year, adding to concern that the slowdown in the eurozone's tird biggest economy is deepening. The jobless rate increased to 6.5 percent from a revised 6.2 percent the previous quarter. This was the highest level since the third quarter of 2006.



It is generally anticipated that Italy will expand at the slowest rate of any euro-region country this year, and Confindustria yesterday cut its 2008 growth forecast to 0.1 percent, a third of last year's rate, as rising food and energy prices and the euro's gain against the dollar put pressure on both consumers and exporters.

There were 16,000 job losses in construction and 11,000 in manufacturing from the last quarter of 2007. The total number of unemployed increased by 205,000 from the same period a year earlier, the first annual increase in five years.


Italian unemployment has steadily declined from a peak of 11.4 percent in 1998, after labor laws were loosened the following year and legal immigrants swelled employment in construction and agriculture. The changes made it easier for companies to hire part-time and temporary workers who don't enjoy the same benefits and job security as full-time staff.

There are signs that the flow of migrant workers into Italy may be ebbing on the back of the slowdown. The number of non-Italians employed dropped to 1,519,000 from 1,584,000 in Q4 2007. This was the second consecutive quarter that migrant employment has dropped.






The Q1 data illustrates the shift toward more precarious work. While the total number of those employed was up by 1.4% year on year (at 23.17 million) the composition of those employed shifted. The number of full time workers was almost stationary at 19.87 million (up just 50,000, or 0.25%). Workers with temporary contracts working full-time, however, were 0.7 percent from a year earlier, while the number of part-timers with on temporary contracts jumped 11.2 percent from the first quarter of last year.

There were 3.3 million part time workers in Italy in Q1 2008, up 300,000 (or around 10%) on Q1 2007.



While the number of part-time workers has steadily increased, those working on temporary contracts has been in decline since last summer, and reached 2.189 million in Q1, only 63,000 above the 2.126 million of Q1 2007.


Regional disparities in unemployment also persist. The jobless rate in Italy's industrial north was 3.7 percent in the first quarter, compared with 11.8 percent in the south of the country.

Italy External Trade April 2008

Italy's foreign trade deficit narrowed to 1.004 billion euros in April from 1.285 billion a year earlier, accroding to the most recent release from the Italian statistics office ISTAT. Exports rose 18.8 percent to 33.511 billion euros in April and imports rose 17.0 percent to 34.515 billion, ISTAT said.



In the four months to April, the trade deficit narrowed to 6.095 billion euros from 6.971 billion, as exports rose 8.7 percent to 122.935 billion and imports increased 7.5 percent to 129.030 billion.






Italy's current account deficit narrowed to 4.129 billion euros in April from 4.726 billion a year earlier, said the Bank of Italy.

Confindustria Forecasts Italian Economy To Flatline in 2008

Confindustria, the Italian employers association, are forecasting that the Italian economy will effectively stall this year as surging food and energy prices coupled with a strong euro takes its toll on consumer spending, manufacturing, and exports . They forecast the Italian economy will grow 0.1 percent this year, the slowest since 2003. That is more pessimistic than the government's prediction of 0.5 percent, which matched the European Commission's April forecast. The economy expanded 1.5 percent last year. It is very hard to say what the final 2008 GDP number will be at this point, but it seems clear that it is going to struggle to stay in positive territory.

Even more importantly they are suggesting that the slowdown growth will strain Italy's public finances. They forecast Italy's budget deficit in 2008 will rise to 2.5 percent of gross domestic product compared with its previous forecast in December of 2.2 percent. This is really the number of all numbers to watch, since Italy really needs to avoid a deficit of over 3% if it wants to stay out of trouble with the debt ratings agencies. The business group predicts the deficit will increase to 2.6 percent in 2009, casting doubt on the government's ability to balance the budget by 2011 as required by EU agreements.

Italian Business Confidence June 2008

Italian business confidence dropped to its lowest level in almost three years in June as slowing economic growth, rising energy costs and a stronger euro all weighed on orders. The Isae Institute's business confidence index dropped to 87.1 from a revised 89.4 in May. That is the lowest reading since July 2005.



The sub-index for total orders fell to minus 18 from minus 16 in May, and the three-month outlook for production fell to 11 from 14. Sentiment about the economic situation going forward worsened, with that sub-index falling to minus 14 from minus 10.

Italian Consumer Confidence June 2008

Italian consumer confidence fell back again in June as weak economic growth and rising food and fuel prices continued to affect morale. The Rome-based Isae Institute's index, which is calculated from a survey of 2,000 families, slipped to 100 from 103.2 last month. This is now not far above the four-year low of 99 hit in March.



The sub-index measuring consumer optimism about the economic outlook declined to 97.8 from 101.7, while the measure of households' perception of inflation over the past 12 months climbed to its highest in 25 years.

This consumer confidence reading follows news yesterday that the eurozone is sliding closer to ongoing stagflation – low growth combined with rising inflation – as we learnt that private sector output across the zone probably contracted this month for the first time in five years.

The eurozone purchasing managers’ index dropped from 51.1 in May to 49.5 in June, the first contraction in activity since July 2003. The risk of a recession in the 15-country region has therefore increased. This now contrasts sharply with the robust growth seen at the start of the year. But the same survey also showed inflationary pressures mounting – especially in the service sector, where prices rose at the fastest rate for more than seven years. That will certainly alarm the ECB, which saw the annual eurozone inflation rate leap to 3.7 per cent in May, the highest for 16 years, and is braced for a rise as high as 4 per cent in coming months.


So what we may well be seeing here is the prospect of higher official eurozone borrowing costs hitting already weak sentiment. At the end of the day the ECB could well end up getting much of the blame for the sharp economic slowdown which is now in the offing, which certainly wouldn't be just, but then again they do not seem to have sufficiently anticipated what may now be about to happen. Certainly inflation needs to be kept under control, but we need a mid term discourse which really rises to the challenge of the situation, and which doesn't simply limit itself to the repetition of old, and already well worn, truisms.


Adding to the growing gloom, Germany's GFK consumer confidence index dropped again this month.

Italy Balance of Payments April 2008

In April 2008 Italy's current account deficit stood at 4,129 EUR million compared to a deficit of 4,726 EUR million in April 2007. Positive movements in the services balance (650 EUR million) and the goods balance(352 EUR million) were partly offset by negative movements in the income balance (211 EUR million) and in current transfers (194 EUR million).

In the 12-month period to April 2008, the current account recorded a deficit of 38,297 EUR million compared to a deficit of 39,089 EUR million a year earlier. A positive change in the goods balance (10,176 EUR million) was almost entirely offset by a negative change in the income (6,704 EUR million), services (1,349 EUR million) and current transfers (1,331 EUR million) balances.

In April 2008 direct investment showed a net outflow of 1,106 EUR million and portfolio investment showed a net inflow of 14,454 EUR million. ‘Other investment’ recorded a net outflow of 13,708 EUR million. Compared to April 2007, Italian direct investment abroad decreased by 2,193 EUR million, and Italian portfolio investment decreased by 16,576 EUR million. Foreign direct investment decreased by 758 EUR million and foreign portfolio investment increased by 7,929 EUR million, reflecting investment in 'debt securities’.

In the 12-month period to April 2008, direct investment showed a net outflow of 27,701 EUR million compared to a net outflow of 26,086 EUR million a year earlier.


Net portfolio investment increased by about 94 EUR billion from a net inflow of 5,560 EUR million to a net inflow of 99,670 EUR million. On the one hand Italian investment in equities and debt securities decreased respectively by about 60 and 31 EUR billion and foreign investment in debt securities increased by about 25 EUR billion. On the other hand foreign investment in equities decreased by about 22 EUR billion.