Italian Consumer Confidence Falls on Recession

By Lorenzo Totaro

Dec. 23 (Bloomberg) -- Italian consumer confidence fell in December to the lowest in four months on concern that the worst recession since 1992 would boost unemployment.

The Isae Institute’s consumer confidence index dropped to 99.6 from 100.4 in November, the Rome-based research center said today in an e-mailed statement. The reading was in line with the median forecast of 99.5 in a survey of 17 economists by Bloomberg News.

“We expect a significant fall in consumer spending in the fourth quarter,” said Luigi Speranza, an economist at BNP Paribas in Milan. “Consumers can partly benefit from lower energy prices, but the prevailing sentiment is pessimism on the outlook for the labor market and about the financial crisis.”

Italy entered its fourth recession in seven years in the third quarter as the global economic slowdown prompted the country’s biggest manufacturers to cut output and jobs. The euro region’s third-biggest economy is set to contract this year and next, the most prolonged slump since the end of World War II, Italy’s employers’ association Confindustria said on Dec. 16.

Italian consumers were more pessimistic than the European counterparts. French consumer spending unexpectedly rebounded in November as stimulus measures and declining energy prices cushioned the impact of deteriorating economic growth, Insee, the national statistics office in Paris, said today. Consumer confidence for January in Germany, Europe’s biggest economy, was unchanged, a separate report showed yesterday.

Job Cuts

Companies in Italy’s $2.3 trillion economy cut jobs and stepped up layoffs to weather the global economic slowdown and credit crunch. Telecom Italia SpA, the country’s largest phone company plans to trim another 4,000 jobs after paring its revenue forecast. The company and unions agreed in September on a plan to eliminate 5,000 positions by 2010 on a voluntary basis.

As slumping consumer confidence holds back demand for its cars, Fiat SpA, Italy’s biggest manufacturer will shut three of its biggest Italian plants for two additional weeks. The carmaker also announced it will temporarily lay off 48,000 workers, more than half its Italian staff, through Jan. 10.

A record number of Italian managers were fired this year, Corriere della Sera reported on Dec. 18, citing national company managers’ association Federmanager. About 5,000 of Italy’s 82,000 management positions were eliminated in 2008, compared with 3,000 last year when the economy first began showing signs of a slowdown, the newspaper said.

Sales Falling

Italian retail sales fell in October, a separate report showed today. An index compiled by the Rome-based national statistics office, Istat, dropped 0.3 percent from a revised gain of 0.2 percent in September. Istat originally reported a monthly gain of 0.3 percent in October.

Consumers are getting some relief from a plunge in oil prices that is cutting gasoline and heating costs and bringing down the inflation rate. Consumer prices rose 2.7 percent in November, the slowest pace in 11 months, as lower energy costs and the recession made it harder for producers and retailers to raise prices. The inflation rate had reached a six-year high of 4.1 percent in August. The price of crude has fallen by more than two thirds to less than $34 a barrel this month from a record $147.27 on July 11.

Christmas Gloom

Italian workers, concerned about the recession, will spend less of their annual Christmas bonus than last year and put more money aside to cope with harder economic times, retail association Confcommercio said.

To boost spending, Prime Minister Silvio Berlusconi’s government on Nov. 28 presented an 80 billion-euro ($115 billion) economic stimulus plan that includes cash payments to low-income families. The government will also force banks to link new variable-rate mortgages to the European Central Bank’s benchmark rate, rather than money-market rates, which have surged.

The ECB has cut its key interest rate by 175 basis points to 2.5 percent since early October to combat recession and investors bet it will lower borrowing costs to at least 2 percent in January, Eonia forward contracts show. Policy makers have indicated in recent days that they’re reluctant to decrease rates much further.

Isae conducted its survey of 4,000 companies between Dec. 1 and Dec. 19.

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