Italian Consumer Confidence Declines to 16-Year Low on Austerity: Economy

Italian consumer confidence fell in December to the lowest in 16 years as Europe’s debt crisis forced austerity measures and intensified households’ concerns about a probable recession.

The sentiment index declined to 91.6, the lowest since January 1996, from a revised 96.1 in November, national statistics office Istat said in Rome today. Economists forecast a reading of 95.3, according to the median of 11 estimates in a Bloomberg News survey. Euro-area confidence fell to the lowest in more than two years, according to a Dec. 21 report.

Bank of England Governor Mervyn King said yesterday that growth prospects in Europe “have deteriorated” and there are signs stresses in financial markets are feeding through to the economy. In Italy, lawmakers gave final approval to a 30 billion-euro ($40 billion) budget package, including a pension overhaul, a levy on primary residences and higher gasoline prices, that may push the euro area’s third-biggest economy deeper into a recession.

“All the leading indicators in the euro zone are pointing to recession across the region,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “Conditions in Italy and the other peripheral economies are difficult because of the austerity program and lack of economic growth, and there’s concern about how things are going to develop for the next year.”

Italy’s economy shrank in the third quarter and the government forecasts a contraction in the current three-month period. The European Commission forecast last month that Italy will expand just 0.1 percent in 2012, compared with a projected 0.5 percent for the 17-nation euro area as a whole.

Italian Yields

Prime Minister Mario Monti’s budget plan is aimed at taming surging borrowing costs and balancing the budget in 2013. The yield on Italy’s 10-year bond yield was at 6.9 percent as of 12:36 p.m. in Rome. It reached a euro-era record of 7.48 percent on Nov. 9.

“It’s also essential for our economy to return to growth,” Monti told lawmakers before the Senate vote yesterday. He said the government will now focus on overhauling the labor market and welfare system to spur economic expansion.

Company Pressure

Fiat SpA (F), Italy’s biggest manufacturer, agreed with unions in November on a plan to close its Termini Imerese factory. On Dec. 13, the Turin-based carmaker signed a deal with its 86,000 Italian employees that increases shifts and shortens breaks in exchange for a 20-billion euro investment plan.

Italian consumer spending declined 0.2 percent in the third quarter as gross domestic product fell 0.2 percent, Istat said in a Dec. 21 report. Unemployment jumped to a 17-month high of 8.5 percent in October, with youth joblessness topping 29 percent.

Continuing turmoil in the euro area is clouding growth prospects across Europe. In the U.K., services output fell the most in six months in October, official data showed today. A separate report by the British Bankers’ Association showed mortgage approvals fell in November, as households focused on repaying debt rather than increasing borrowing.

France’s third-quarter economic growth was revised down to 0.3 percent from a previous estimate of 0.4 percent, the Insee statistical institute said. Meanwhile, the Swiss central bank said companies expect sales to weaken further over the coming months due to strength of the franc. In Russia, the central bank unexpectedly cut its benchmark interest rate in a bid to shield the economy from the slump.

Asian nations are also being caught up in the downturn. Singapore’s industrial production unexpectedly declined in November, as evidence of a weakening Asian outlook prompted Fitch Ratings to cut its growth forecasts for the region.

“Emerging Asia’s growth prospects remain relatively favourable, though the region is not immune from problems elsewhere in the world,” Fitch said. It lowered its 2012 projection to 6.8 percent growth from 7.4 percent.

To contact the reporters on this story: Chiara Vasarri in Milan at cvasarri@bloomberg.net; Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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