Italian July Production Plunges as Economic Growth Stagnates

By Steve Scherer and Flavia Krause-Jackson

Sept. 12 (Bloomberg) -- Italian industrial production declined more than expected in July as economic growth stalled and high oil prices boosted costs and sapped consumer spending.

Production fell 1.1 percent from the previous month, from a revised decline of 0.2 percent in June, the national statistics office in Rome said today. Istat initially reported a gain of 0.1 percent for June output. Economists had predicted manufacturing would drop 0.5 percent in July, according to the median of 24 forecasts compiled by Bloomberg News.

``Households are cutting back and that is affecting businesses too that have to deal with a drop in orders,'' said Marco Valli, and economist at UniCredit MIB in Milan.

Italian consumer spending and exports declined in the second quarter, forcing gross domestic product to shrink and pushing the country closer to a recession. The price of oil rose to a record $147.27 in July, boosting production costs and pushing Italian Business confidence in August to the lowest level since the Sept. 11 terrorist attacks.

Fiat SpA, Italy's biggest carmaker, posted a 23 percent drop in car sales in Italy last month. Indesit SpA, Europe's third-largest home appliance maker, said on July 30 that full- year earnings before interest and taxes may be 10 percent to 20 percent less than in 2007.

Italy is set to be the slowest-growing economy in the region this year and has lagged behind the European Union average for more than a decade. The economy will grow 0.1 percent this year, a fraction of the rate of its biggest trading partners, France and Germany, which will expand 1 percent and 1.8 percent respectively, the European Commission predicted earlier this week.

To contact the reporters on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.net; Steve Scherer in Rome at scherer@bloomberg.net