Italian Business Confidence November 2007

Well hot on the heels of the small rise in the German IFO business confidence index we find that in contrast the ISAE Italian business confidence index declined in November to the lowest in almost two years as the euro's gains have been acting as a curb on exports. The Isae Institute's business confidence index fell to 92.2 from a revised 92.8 in October, the Rome-based research center reported today. That is the lowest reading since December 2005.




Again, I would draw attention to Claus Vistesen's eurozone Q3 GDP conclusions:

Although the slowdown seems set to be Eurozone and indeed also EU25 wide I will be watching Italy, Greece, and Portugal in particular since these three countries are those most likely to feel the pinch longest and hardest.

Italy GDP Q3 2007

Well, a positive surprise on the upside for a change, since Italian economic growth accelerated in the third quarter, powered by consumer spending on services and manufactured goods, according to the report recently released by ISTAT.

Gross domestic product rose 0.4 percent from the second quarter, when it grew 0.1 percent, and expanded 1.9 percent when compared with Q3 2006.






Where we go from here is really anyone's guess, but there must be strong downside risks. Claus Vistesen has quite a comprehensive summary of the Q3 eurozone situation here, and Morgan Stanley's Vladimir Pillonca is hardly optimistic:

The Italian – and global – growth outlook seems to be darkening every day, despite the expected bounce-back of growth in the third quarter. We forecast Italian growth to slow sharply next year, to just 1.2%Y, from 1.8%Y this year, and we don’t anticipate a recovery to gather traction until the second half of next year. Risks are skewed to the downside. The possibility of a growth recession next year – defined as two or more quarters of negative quarter-on-quarter growth – is not a remote one.

as he says:

Consumer spending looks set for a slowdown after an unsustainably strong first half of the year. After all, wages are barely rising once we account for inflation, and both tax pressure and interest rates have risen in the recent past. Forward-looking consumers are likely to react to a more uncertain future, by allowing their savings to rise and their consumption growth to fall.

Is he clairvoyant or something, since this is exactly what the ISAE survey is showing consumer expectations to be at this point (and Pillonca's piece was written before this data release).

I will try and find the time to do a more in-depth analysis of Italian GDP when the full results are published in early December.

Italy Consumer Confidence November 2007

Italian consumer confidence surprisingly rose to a six-month high in November. The Rome-based Isae Institute's index, which is based on a poll of 2,000 households, rose to 107.6, the highest level since May, from 107.3 last month. However if we look at the chart we will see that the index has hardly budged since September, and that we are still in comparatively low territory.




One surprising detail in this months report is that consumers are saying that they are more likely to save their money than spend it in the near future, possibly becuase they are anticipating an economic slowdown in Italy.

A sub-index measuring household confidence in the ability to save rose to 143 from 132, and another measuring the ability to put money away in the future rose to minus 76 from minus 86. On the other hand, consumers grew more negative about growth, with a gauge falling to minus 35 from minus 29.

Italian Industrial Output September 2007

Italian industrial production fell back at the fastest rate in nearly a year in September as a stronger euro is making Italian exports more less competitive with products from outside the eurozone and as consumer spending continues to follow its lacklustre path. In fact this was the first fall in three months, as up to September Italian industrial output, and really somewhat against the trend, had been holding up rather well.



Production fell 1 percent from the previous month, when it rose a revised 1 percent, according to data from the national statistics institute - Istat, released at the end of last week.

According to Luca Cordero di Montezemolo, chairman of Fiat SpA, Ferrari SpA and head of Italy's Confindustria ``The strong euro is creating enormous problems....When a company like Ferrari exports 30 to 35 percent of production to the dollar area, it's hard for us.''

Concern about the strength of the rising value of the euro, which climbed to a record of $1.4738 on Friday, has also help drag Italian business confidence to its lowest level in almost two years in October. In addition oil prices moving in the direction of the $100 a barrel range are raising manufacturing costs and leaving households with less money to spend.

The European Central Bank left the benchmark interest rate unchanged last week as policy makers weighed signs of slowing economic growth in countries like Germany and Italy against the threat of accelerating inflation.

Manufacturing in France and Germany, Italy's two biggest trading partners,is also slowing. French production dropped 1.1 percent on August while German output growth slowed to 0.3 percent from August when it surged 1.9 percent.

Italian production of consumer goods declined 4.2 percent in the month. Manufacturing of non-durable goods such as clothing declined 4 percent. Durable goods, which include washing machines and refrigerators, fell 3.7 percent.

The declines in production of consumer-related goods reflect Italian households' reluctance to spend, and indeed Italian retail sales fell for an eighth month in October.

The Italian government last month cut its economic growth forecasts to an expansion of 1.9 percent this year, slowing to 1.5 percent in 2008, as rising credit costs triggered by the collapse of the U.S. subprime mortgage market damp the global expansion.