Italian Consumer Confidence Declines to 17-Year Low

Italian consumer confidence unexpectedly declined this month to the lowest in at least 17 years as the country’s fourth recession since 2001 damped optimism.

The confidence index dropped to 84.6, the lowest since the series began in 1996, from 85.7 percent in December, the Italian statistics office Istat said in Rome today. Economists had predicted an increase to 86, according to the median of 12 forecasts in a Bloomberg News survey.

“Cautious household spending will serve as a major obstacle to any recovery in economic activity” this year and the next, Raj Badiani, an economist at IHS Global Insight in London, said in an e-mailed note to clients. The Bank of Italy said on Jan. 18 it expects households’ spending to decline 1.9 percent this year.

The Italian economy contracted at least 0.6 percent in the fourth quarter of last year, employers lobby Confindustria said in a report today. This month the central bank cut its forecast for gross domestic product in 2013 to a decline of 1 percent compared with a previous estimate of a 0.2 percent reduction.

Both the government and the central bank expect a recovery in the second half of this year amid increasing exports. Economists and businessmen are less optimistic about a pick up in domestic demand as unemployment tops 11.1 percent.

Tax Cuts

The country’s economic policy is up for review as Italians prepare to vote Feb. 24-25. Pier Luigi Bersani, who leads a coalition of center-left parties and is ahead in all opinion polls, has proposed cutting income tax rates on low and middle incomes and raising levies on high earners, while former premier Silvio Berlusconi is pushing for the abolition on primary residence of a property tax known as IMU.

Outgoing Prime Minister Mario Monti, who during his 14-months in office has raised levies to tame the sovereign debt crisis, said cutting taxes now is not “incoherent” though the next administration should avoid making promises that it wouldn’t be able to keep.

Speaking on La7 television today, he proposed 11.5 billion euros $15 billion in cuts to the IRAP regional corporate tax over five years starting in 2014, 15.5 billion euros in lower income taxes and 2.5 billion euros in breaks for first-home owners and families with children.

Reducing the fiscal burden might be difficult as Italy may need at least 9 billion euros in additional budget measures this year to meet its deficit goal, Finance Undersecretary Gianfranco Polillo said in an interview in Rome Jan. 18. Monti today denied that more budget cuts would be needed this year.

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