Italy Business Confidence Falls to Lowest in Almost 3 Years

Italian business confidence fell more than economists forecast, declining this month to the lowest level in almost three years as the country’s fourth recession since 2001 deepened.

The manufacturing-sentiment index dropped to 86.2, the lowest since August 2009, from a revised 89.1 in April, Rome-based national statistics institute Istat said today. Economists had predicted a reading of 88.6, according to the median of 16 estimates in a Bloomberg News survey.

“We are likely to see more drops going forward, also because some taxes introduced by Monti’s government will take effect in the second part of the year,” Nicola Marinelli, portfolio manager at Glendevon King Asset Management in London, said by phone.

The euro region’s third-biggest economy will shrink 1.5 percent this year as household spending and corporate investment both decline, Istat said in a May 22 report. That gross domestic product forecast compares with a 1.2 percent contraction expected by Prime Minister Mario Monti’s government. The statistics institute also said the unemployment rate, currently at a 12-year high of 9.8 percent, won’t start falling until 2014.

“A key concern is that firms are increasingly concerned about Italy’s economic outlook, with the sub-index measuring this sinking to its lowest level since early 2009, which is likely to be a significant drag on employment and investment decisions in the next few quarters.” Raj Badiani, an economist at Global Insight Inc. in London, wrote in a note.

Rising Pessimism

Pessimism among households and businesses has grown after Monti’s government started implementing a 20 billion-euro ($26.4 billion) austerity plan passed in December that aims to eliminate the deficit in the next two years. The measures included tax increases and higher gasoline prices that crimped domestic demand. Consumer confidence plunged this month to the lowest since 1986.

Fiat SpA, Italy’s biggest manufacturer, will temporarily lay off 5,400 employees in Turin for six days in June and July, union Fiom Cgil said on May 18. It’s “very bad news as it shows that the company also has problems at the the upper levels,” Fiom official Edi Lazzi said in a statement.

Italian companies are suffering under Europe’s highest tax burden, amounting to 68.5 percent, Giorgio Squinzi, the new leader of the country’s main employer lobby Confindustria said in a May 24 speech. He called on banks to provide credit to firms after European lenders received more than 1 trillion euros in three-year loans from the European Central Bank.

Istat originally reported a reading for April business confidence of 89.5.

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