Italian Business Confidence Drops to Lowest in Two Years

Italian business confidence unexpectedly fell to the lowest level in more than two years in April amid concerns that the country’s fourth recession in a decade may deepen.

The manufacturing-sentiment index dropped to 89.5 from a revised 91.1 in March, Rome-based national statistics institute Istat said today. Economists had predicted a reading of 92.1, according to the median of 11 estimates in a Bloomberg News survey.

“It is premature to say whether today’s decline in business sentiment might be a temporary blip or a signal of a more protracted phase of very weak economic activity,” Unicredit economists Chiara Corsa and Loredana Federico wrote in a note today. “Still, taken at face value the April figure is consistent with a GDP contraction at the beginning of the second quarter.”

Prime Minister Mario Monti’s Cabinet, which is implementing a 20 billion-euro ($26.4 billion) austerity plan to eliminate the deficit, lowered its forecasts for the euro-region’s third- biggest economy on April 18, saying it will contract 1.2 percent this year. The Treasury also forecast that unemployment, at an 11-year high of 9.3 percent, won’t start declining until 2013.

Taxes, Gasoline

Pessimism among households has grown as tax increases and higher gasoline prices crimp domestic demand. Consumer confidence plunged to the lowest in more than 15 years this month, Istat said on April 23.

The government has no room to cut income tax levels until it gets public finances under control, Deputy Finance Minister Vittorio Grilli told reporters on April 24. Italy last week followed Spain in delaying its deficit goal, saying it will be able to erase it only in 2014, a year later than planned in December.

Italy entered a recession in the fourth quarter of 2011. Gross domestic product may have contracted a further 0.7 percent in the three months through March as industrial production probably slowed, the Bank of Italy said in its economic bulletin last week. The economic outlook “remains marked by a high degree of uncertainty,” the central bank said.

Earlier this month, Confindustria, the country’s employer’s lobby, projected that industrial output shrank 2.3 percent in the first quarter, about the same as the 2.4 percent decline in the final three months of 2011.

New car registrations in Italy fell 27 percent in March as Fiat SpA’s Chief Executive Officer Sergio Marchionne said he expects sales to tumble to the lowest since 1985 this year after dropping 36 percent last month.

Industrial orders fell 12.3 percent in February from a year earlier while sales fell 1.5 percent, Istat said on April 19.

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

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net Craig Stirling at cstirling1@bloomberg.net

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