Italy Business Optimism Unexpectedly Falls on Recession

Italian business confidence unexpectedly fell this month as signs the country’s fourth recession since 2001 is deepening fueled pessimism among manufacturers.

The manufacturing-sentiment index declined this month to 87.6 from a 88.3 in September, Rome-based national statistics institute Istat said today. Economists had predicted an October reading of 88.7, according to the median of 13 estimates in a Bloomberg News survey.

Italy entered a recession in the final quarter of last year as the global slowdown aggravated the effects of waning productivity and tax increases and public spending cuts passed by Prime Minister Mario Monti’s government to contain the euro- region’s second biggest weighed on demand. The government last month revised its forecasts and said the economy will shrink 2.4 percent this year, twice its previous prediction.

Still, Industrial output unexpectedly rose in August, signalling the recession may be easing and consumer confidence gained this month as the government announced tax cuts for the lowest earners to offset the effect of an increase on the value- added levy next year.

The Bank of Italy predicts that Italy will emerge from the recession next year, while the economy is still likely to contract in 2013. The International Monetary Fund estimated this month in its World Economic Outlook that the economy will contract 2.4 percent in 2012 and 0.7 percent next year.

-- With assistance from Giovanni Salzano in Rome. Editors: Andrew Davis, Jerrold Colten

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

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

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