Italian Business Confidence Falls to 15-Year Low

By Lorenzo Totaro

Oct. 24 (Bloomberg) -- Italian business confidence fell to the lowest in 15 years in October and consumer optimism dipped on prospects that the global financial crisis has pushed Europe's fourth-biggest economy into a recession.

The Isae Institute's business confidence index dropped to 77.7 from a revised 81.8 in September, the Rome-based research center said today. That was less than the median forecast of 81.7 in a survey of 17 economists by Bloomberg News. Consumer confidence slipped to 102.2 from 102.8, Isae said.

The credit crunch is making it difficult for companies to borrow and invest, and the falling stock market, combined with higher mortgage rates, is weighing on consumer spending. The Italian economy contracted in the second quarter and Bank of Italy Governor Mario Draghi indicated on Oct. 21 that Italy is already in the fourth recession in a decade.

``Manufacturers' confidence has fallen to a level consistent with clearly shrinking factory output, and negative growth,'' said Marco Valli, an economist at UniCredit SpA in Milan. ``The positive effect on production of lower oil prices and the weaker currency is unlikely to show up anytime soon.''

U.K. Contracts

Oil prices have tumbled 54 percent from the record $147.27 on July 11 and dropped about 23 percent from a year ago on the prospect that a global economic recession will crimp demand. On the currency market, the euro is trading near a two-year low against the dollar, making European exports cheaper abroad.

Still, the slumping global economy is offsetting the effects of the cheaper oil and exports on confidence. The U.K. economy shrank 0.5 percent in the third quarter, the first contraction in 16 years, a report said today. Unemployment in Spain rose to the highest in more than four years and tops the EU at 11.3 percent, another report showed today.

Prospects for a global recession slammed financial markets today with Italy's benchmark S&P/MIB falling as much as 9 percent to its lowest in almost 11 years.

ISAE also presented evidence about how the freeze in credit markets is affecting the real economy. The number of Italian companies failing to get a loan, either because banks refused to lend or because the costs involved were considered excessive, rose in the third quarter to 8 percent from 6.9 percent in the previous three months, Isae said today.

Car Sales

Manufacturers are also being hit by slumping demand. Italian new auto registrations declined for a ninth straight month in September, cutting Fiat SpA's car sales by 6 percent in its biggest market.

As Italy's largest manufacturer, Fiat is a bellwether for the state of the country's economy. The carmaker now forecasts earnings may plunge as much as 85 percent next year in a ``worst-case'' scenario if the financial crisis continues to sap credit and depress auto demand. It is ``difficult to peg a particular point as being a reliable guidance for the performance of Fiat in 2009,'' Fiat said in a release on Oct. 23.

Eaton Corp., the Cleveland-based maker of power- distribution equipment and car-engine parts, said on Oct. 20 it will close an engine-valve factory in Massa, Italy, putting 355 people out of work by year-end, as demand declines in the automotive industry.

Isae conducted its survey of 4,000 companies between Oct. 1 and Oct. 20.

To contact the reporter on this story: Lorenzo Totaro at ltotaro@bloomberg.net