Italian Business Confidence Fell in July to Lowest in 7 Years

By Steve Scherer

July 24 (Bloomberg) -- Italian business confidence fell to its lowest in seven years in July as rising oil costs and a stronger euro hurt prospects for economic growth.

The Isae Institute's business confidence index dropped to 83.5 from a revised 86.7 in June the Rome-based research center said today. That's the lowest since October 2001 and less than the median forecast of 86.5 in a Bloomberg survey of 17 economists.

Manufacturers' costs are rising as companies struggle with the euro's 13 percent appreciation against the dollar in the past year and near-record oil prices. Prime Minister Silvio Berlusconi, who took office less than three months ago, has lowered taxes on overtime pay to try to help businesses cope with slowing growth.

``The fact that confidence is at its lowest point since just after the Sept. 11 attacks is significant,'' said Paolo Mameli, an economist at Intesa Sanpaolo SpA in Milan. ``Confidence probably will continue to fall as raw materials prices rise and demand slumps.''

The economic slump is starting to weigh on businesses. Fiat SpA, Italy's biggest carmaker, is closing four of its six domestic plants for three weeks because of slumping sales at home. Parmalat SpA, the country's biggest dairy, last week cut its profit forecast for this year, citing slow growth in Italy and its other main markets.

Italy's economy will expand 0.5 percent this year and the next, the International Monetary Fund said last week. That would be the worst performance among the world's advanced economies, defined as the Group of Seven countries and the 15 euro nations.

Italian businesses' ``concern about the international economic cycle is intensifying,'' Isae said in a statement. Crude oil has risen 70 percent in the past year, reaching a record $147.27 a barrel on July 11.

A measure of total orders fell to minus 22 from minus 18 in June, and the three-month outlook for production declined to 5 from 10. Businesses expect prices to keeping rising in the next three months, with an index measuring cost expectations increasing to 19 from 16 in June.

Isae conducted its survey of 4,000 companies between July 1 and July 18.

To contact the reporters on this story: Steve Scherer in Rome at scherer@bloomberg.net