Italian business confidence unexpectedly fell to a two-year low in February after the economy entered its fourth recession since 2001 under the weight of austerity measures to fight the sovereign debt crisis.
The manufacturing-sentiment index fell to 91.5, the lowest since November 2009, from 92.1 in January, Rome-based national statistics institute Istat said today. Economists had predicted a gain to 92.3, according to the median of 16 estimates in a Bloomberg News survey.
Prime Minister Mario Monti is implementing a 20 billion-euro ($26.9 billion) package of spending cuts and tax increases to eliminate the budget deficit and reduce the nation’s 1.9 trillion-euro debt. Those measures are weighing on growth, with the European Commission forecasting on Feb. 23 that the Italian economy will contract 1.3 percent this year.
“There is the recognition that we are in a recessionary phase of the economic cycle,” said Silvio Peruzzo, an economist at Royal Bank of Scotland in London. “While in Germany and in some other countries the manufacturing sector has shown improvement, in Italy for the past few months we have seen the trend deteriorating.”
The euro weakened today, falling 0.4 percent to $1.3400 as of 10:50 a.m. in London. The Stoxx Europe 600 Index declined 0.8 percent to 262.61, while Italy’s benchmark FTSE MIB Index shed 1.5 percent.
Fiat SpA, the country’s biggest manufacturer, may shut two of its five domestic car factories if it can’t produce competitively in Italy and export vehicles to the U.S. since the outlook for its European business is bleak, Chief Executive Officer Sergio Marchionne told newspaper Corriere della Sera last week. The company closed its Sicilian plant at the end of last year as it seeks to cut costs and improve productivity after losing 500 million euros in Europe in 2011.
Monti’s efforts to tame the deficit and additional measures his government has passed to spur economic growth are helping to boost optimism among investors in Italy. The country’s 10-year bonds rose for a seventh week through Feb. 24. The yield fell 2 basis points today to 5.462 percent, narrowing the difference with similar maturity German debt to 358 basis points.
Those gains are helping bring down borrowing costs. The Treasury today sold the maximum target of 12.25 billion euros of six-month and 295-day bills to more than cover 8.75 billion euros of short-term debt maturing on Feb. 29. It sold the six-month bills at 1.202 percent, the lowest paid since September 2010.
In Asia, there are signs of improving sentiment. South Korean manufacturers’ confidence on the prospects for March rose to a five-month high, increasing to 84 from 81, a Bank of Korea index showed in Seoul today. Sentiment also improved at other businesses, the report said. Data last week showed consumer confidence at a three-month high.
A U.S. index of pending home sales probably rose 1 percent in January from the previous month, boosting signs of stabilization in the nation’s housing market, economists predict before a report from the National Association of Realtors today. The Federal Reserve Bank of Dallas may say its index of manufacturing activity rose to 15.5 this month from 15.3 in January, a separate survey showed.
In Europe, leaders shift their focus this week to bolstering the euro region’s debt-crisis firewall after the Group of 20 nations rebuffed their call for help.
The decision by G-20 finance ministers to fend off pleas for assistance pending an increase in the euro-area backstop puts the onus on Germany, the biggest national contributor to bailouts, to overcome its resistance to doing more.
With a parliamentary vote on a second Greek aid package looming in Berlin today, German Chancellor Angela Merkel’s government must now decide whether to back plans at a March 1-2 European Union summit to combine rescue funds and produce a potential firewall of 750 billion euros.
Meanwhile, the European Central Bank will offer financial institutions another batch of three-year loans tomorrow in an effort to get credit flowing through the euro-area economy.
Banks will seek 470 billion euros ($633 billion) in a second round of unlimited three-year funds to be allotted on Feb. 29, approaching the 489 billion-euro take-up at the first such operation in December, according to the median estimate of 28 analysts surveyed by Bloomberg News.
Data today showed growth in loans to households and companies in the 17-nation euro area accelerated in January. Loans to the private sector grew 1.1 percent from a year earlier after gaining an annual 1 percent in December, the ECB said.
“While it is early days and monthly data tend to be extremely volatile, today’s numbers for January do point to an easing of credit conditions,” said Jens Sondergaard, an economist at Nomura International Plc in London. “That is good news for the euro area and should give the ECB confidence that its liquidity injections are working as intended.”