Italian Business Confidence Falls to Record Low on Recession
Italian business confidence fell more than expected to a record low as the worst recession since 1992 and the fallout of the 18-month long financial crisis hurt sales, prompting companies to cut output and jobs.
The Isae Institute’s business confidence index dropped to 66.6 in December from a revised 71.6 in November, the Rome-based research center said today. That was less than the median forecast of 70.6 in a survey of 15 economists by Bloomberg News.
“These figures are consistent with the picture of a deep recession in the manufacturing industry,” said Paolo Mameli, an economist at Intesa Sanpaolo in Milan. “As there is usually a three-month gap between this data and the industrial production, we forecast that the economy will contract further next year and won’t resume growing anyway until the last quarter of 2009.”
Italy entered its fourth recession in seven years in the third quarter as the global economic slowdown aggravated the effects of waning productivity and competitiveness of its companies. Italian employers’ lobby Confindustria predicts the recession will extend through next year, the longest Italian slump since the end of World War II.
The decline in optimism mirrored growing pessimism among executives of Italy’s biggest trading partners. French business optimism fell to a 15-year low, a report showed on Dec. 19, while German confidence declined to its lowest since 1982, a Dec. 18 report showed.
Consumer Slump
Households are also responding to the economic contraction by cutting back on spending. Italian consumer confidence fell in December to the lowest in four months on concern that the recession would put more workers out of jobs payday loans. Italy’s unemployment rate held at a two-year high in the third quarter.
The European Central Bank has cut its key interest rate by 175 basis points to 2.5 percent since early October to combat the slowdown. Investors bet it will lower borrowing costs to at least 2 percent in January, Eonia forward contracts show.
The global financial crisis is forcing companies to scale back production and is making it harder for them to borrow funds for investment. The euro interbank offered rate, or Euribor, “has fallen in the last few months, but it remains on high levels,” European Central Bank Executive Council member Lorenzo Bini Smaghi said on Dec. 23, news agency Ansa reported.
About 13 percent of Italian companies trying to get loans are being turned down, either because banks refused to lend or because the costs involved were considered excessive, Isae said today in data included in the confidence report.
Italy joined other European countries in implementing measures to boost the finances of banks to help spur lending. The Italian plan, which will cost as much as 20 billion euros ($28 billion), won the support of European Union regulators. The government will be able to buy so-called subordinated bonds to help boost the banks’ core tier 1 capital ratios, the European Commission, the EU executive in Brussels, said in a Dec. 23 statement.
Isae conducted its survey of 4,000 companies between Dec. 1 and Dec. 18.