Italian Consumer Confidence Plunges to 15-Year Low

By Flavia Krause-Jackson

July 22 (Bloomberg) -- Italian consumer confidence slumped in July to the lowest level since the 1993 recession after record food and energy prices eroded purchasing power.

The Rome-based Isae Institute's index, calculated from a survey of 2,000 families, fell to 95.8 from a revised 99.9 last month. Economists had expected a decline to 99, according to the median of 13 forecasts collected by Bloomberg. In November 1993, the 26-year-old index hit a record low of 95.4.

Oil prices have risen 37 percent this year, clouding the outlook for economic growth and driving up consumer prices in the 15 euro nations at the fastest pace in more than 16 years. Atlantia SpA, Italy's biggest toll-road company, announced last week it would offer drivers discounts on gasoline to try to increase traffic on its highways.

``Confidence has crashed,'' said Marco Valli, an economist at UniCredit SpA in Milan, who forecast a confidence reading of 99.6. ``People are spending less and will continue to make more and more cutbacks,''

Europe's fourth-biggest economy will expand 0.5 percent this year and the next, the slowest among the world's advanced economies, the International Monetary Fund said last week. Italy's growth has trailed the European Union average for more than a decade. Unemployment is rising and the inflation rate reached an 11-year high of 4 percent in June, cutting into the buying power of consumers.

Prospects Dimming

A sub-index measuring optimism about the broad economic situation dropped to a 14-year low of 72.2 from 81.6, Isae said today in its report. A gauge of households' perception about their short-term prospects decreased to 88.4 from 97.6.

Italians are cutting back on spending on everything from new cars to going out to dinner, Isae said. Retail sales declined for the 16th consecutive month, the Bloomberg purchasing managers index showed on June 27.

Sales in Europe's second-biggest car market fell 19.5 percent in June, a sixth straight monthly decline. Fiat SpA, which controls almost a third of the Italian car market, announced that it will shut four of its six Italian factories for three weeks because of weak demand. Autogrill SpA, the world's biggest manager of airport restaurants, cut its full- year sales target on July 16 because the rise in gasoline prices has led to a decrease in highway travel and caused a 1.5 percent drop in air traffic.

Pessimism Spreading

The drop in Italian confidence mirrors growing pessimism in Germany and France. German consumer confidence fell to the lowest in more than two years in July and French optimism fell to a record low in June on soaring inflation and signs that economic growth was slowing.

To fight inflation, the European Central Bank raised its benchmark interest rate on July 3 by 25 basis points to 4.25 percent. The move will raise borrowing costs for manufacturers and could further slow economic growth.

Europe's economy may take longer to recover than the ECB forecasts and could come after the fourth quarter, Italian daily La Stampa reported today, citing an interview with board member Lorenzo Bini Smaghi. He also told the newspaper that the ECB's current benchmark rate wasn't ``exactly restrictive.''

Italian Prime Minister Silvio Berlusconi has abolished a property tax on first homes and unveiled a plan to freeze mortgage payments to try to offset price increases and revive growth. Consumer spending accounts for two thirds of Italy's $2.4 trillion economy.

The Isae survey was conducted between July 1 and July 16.

-- With reporting by Michele Seghizzi in London. Editors: Andrew Davis, John Fraher

To contact the reporter on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net