Italian September Business Confidence Falls to Seven-Year Low

By Lorenzo Totaro and Flavia Krause-Jackson

Sept. 24 (Bloomberg) -- Italian business confidence fell in September to the lowest level in more than seven years as signs Europe's fourth-biggest economy will slip into recession crimped optimism.

The Isae Institute's business confidence index dropped to 82.7 from 83.5 in August the Rome-based research center said today. That is the lowest since October 2001 and less than the median forecast of 83.2 in a Bloomberg survey of 20 economists.

Growth in the $2.3 trillion economy has lagged behind the European Union average for more than a decade and is set to be the slowest in the euro region this year, the European Commission predicted Sept. 10. The economy will contract 0.1 percent in 2008, employers' association Confindustria said on the same day, which would be the first contraction in 15 years.

``The current level of business confidence is consistent with flat gross domestic product growth at best,'' said Marco Valli, an economist at UniCredit in Milan. ``With slowing orders and high stocks, the prospects for production are not favorable. We expect some improvement possibly only at the beginning of next year.''

Exporters were the most pessimistic. An index measuring optimism about orders from overseas dropped to minus 21 from minus 10 as stockpiles grow from the lull in demand. The euro, after falling from a record in July, has gained 4 percent since Sept. 16 as credit markets seized up, leading the U.S. to propose a $700 billion bailout of the banking system. Gains in the euro make goods made in the 15-nation euro economy less competitive in the U.S., Italy's third-biggest trading partner after Germany and France.

Fiat, Alitalia

The cooling economy is taking its toll on Italy's biggest companies. Fiat SpA, Italy's largest manufacturer, suffered a 23 percent decline in Italian car sales in August. Alitalia SpA, the national airline, asked for protection from creditors last month and is teetering on the brink of bankruptcy.

The renewed turmoil in financial markets threatens to further choke confidence and growth. Europe's manufacturing and service industries contracted at the fastest pace in almost seven years in September as the credit-market seizure intensified in the wake of the bankruptcy of Lehman Brothers Holdings Inc. and companies scaled back production in response to slowing orders.

French business confidence fell to the lowest in almost five years in September, a separate report said today. German business confidence probably declined to the lowest level in more than three years in September, another report will show today, according to a survey of economists by Bloomberg News.

The euro-zone economy contracted in the second quarter and slowing growth in France and Germany, Italy's two-biggest trading partners, weighed on Italy. The economy contracted 0.3 percent in three months through June and the commission forecast that Italy will slip into its fourth recession in a decade.

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

---Editors: Andrew Davis, Alan Crosby

To contact the reporter on this story: Lorenzo Totaro at ltotaro@bloomberg.netFlavia Krause-Jackson in Rome at fjackson@bloomberg.net;