Italy: Political Crisis Abates But Outlook Remains Gloomy

Italy 2

Financial markets were reassured after Italian Prime Minister Enrico Letta won a parliamentary vote of confidence on October 2, securing the near-term future of his coalition government. However, recent downbeat indicators have cast doubt over expectations that the economy will exit recession before the end of 2013. The unemployment rate returned to a record-high of 12.2% in September and the outlook for the labour market darkened further on concerns that foreign investors could slash jobs to reduce costs. Indeed, Spanish firm Telefónica raised its stake in Telecom Italia last month, increasing its influence over the indebted Italian phone company. The government has made youth joblessness a priority, and worryingly, the unemployment rate amongst 15-24 year olds climbed to a massive 40.1% in September. The debilitated job market has impeded consumer spending, preventing a recovery from gaining much traction. The pace of decline in retail sales quickened to -0.3% (m-o-m) in July from -0.2% in June. On the back of somewhat encouraging business surveys, industrial production unexpectedly contracted by 1.1% (m-o-m) in July and by -0.3% in August, further dampening Q3 prospects. Exports also began Q3 in disappointing fashion, declining by 2.3% (m-o-m) in July, owing to weak demand from both EU and non-EU countries. Still, a significant rise in export orders helped the manufacturing PMI register 50.8 in September, marking its third straight month above the neutral level of 50. The production outlook has faltered this month, though.

After holding steady at 1.2% (y-o-y) for three months, inflation eased to 0.9% in September, due mainly to a slowdown in food and transport prices.

 

You can download a sample of Consensus Forecasts G-7 and Western Europe at www.consensuseconomics.com.

 

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