Italian Business Confidence Falls to Lowest in Almost Two Years Amid Debt

Italian business confidence fell to the lowest in almost two years in September amid concern that austerity measures and Europe’s sovereign-debt crisis will weigh on economic growth.

The manufacturing-sentiment index dropped to 94.5, the lowest since January 2010, from a revised 98.6 in August, Rome- based national statistics institute Istat said today. Economists had predicted a reading of 98.1, according to the median of 18 estimates in a Bloomberg News survey. Istat originally reported a reading of 99.9 in August.

The mood among executives mirrors Italian consumers’ pessimism as Prime Minister Silvio Berlusconi implements spending cuts and tax increases to shield the country from Europe’s debt crisis. Household confidence fell to the lowest in more than three years in September amid concern about the effects of the government’s 54 billion-euro ($73 billion) deficit-cutting plan, which aims to balance the budget in 2013.

The measures, passed in exchange for European Central Bank purchases of Italian bonds to stem surging borrowing costs, didn’t stop Standard & Poor’s from lowering Italy’s credit rating for the first time in five years on Sept. 19. Moody’s Investors Service had said the week before that Italy remained under review for a downgrade given the “increasingly challenging economic and financial environment and fluid political developments in the euro area.”

Last week, both the International Monetary Fund and the government cut their forecasts for Italian growth. On Sept. 22, the Finance Ministry said the euro area’s third-biggest economy will expand 0.7 percent this year and 0.6 percent next year, compared with April forecasts of 1.1 percent and 1.3 percent, respectively. The IMF predicted an expansion of 0.6 percent in 2011 and 0.3 percent in 2012.

To contact the reporter on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net.

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