Italian Business Confidence Declines Amid Concerns On Recovery

Matteo Renzi
Matteo Renzi, Prime Minister of Italy. Photographer: Alessia Pierdomenico/Bloomberg

Confidence among Italian employers unexpectedly fell this month amid concerns that Prime Minister Matteo Renzi will run into difficulties in building a sustainable economic recovery.

The business confidence index dropped to 102.5 from a revised 103.5 in July, the Rome-based national statistics agency Istat said on Friday. Economists predicted 103.6, according to the median of six estimates in a Bloomberg survey. The Istat index is based on a poll of about 4,000 businesses.

The euro region’s third-biggest economy expanded in the second quarter at a slower pace than economists had forecast. Italy’s industrial production fell 1.1 percent in July after the latest data showed orders had dropped. Finance Minister Pier Carlo Padoan said this week that the current growth pace in Italy and Europe isn’t “satisfactory.”

Any tax cuts Premier Renzi promises will have to be covered by spending reductions of the same amount to put Italy’s 2.2-trillion-euro ($2.5 trillion) public debt on a descending path, Padoan said in a speech on Wednesday.

In its April budget plan the government predicted the nation’s gross domestic product will rise 0.7 percent in 2015. That projection matches estimates by both the Bank of Italy and the International Monetary Fund.

Without the economy picking up further, a sustainable recovery in the labor market remains unlikely in the short term. Italian unemployment rose to 12.7 percent in June with the youth joblessness reaching a record high of 44.2 percent.

Last month, 40-year-old Renzi pledged three years of tax cuts worth 35 billion euros from 2016 to 2018, including the abolition of a much-hated property levy on first homes starting from next year.

Data released on Thursday by the European Central Bank and the Italian Banking Association ABI showed that consumer credit in the country rose both in June and July.

That reflected in growing optimism among Italian households. Consumer confidence rose to 109 from 106.7 in July, Istat said in its report on Friday.

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