Italian Business Confidence Rises in October as Recession Ends

By Lorenzo Totaro

Oct. 28 (Bloomberg) -- Italian business confidence rose in October to the highest in more than a year, a further sign that companies are boosting output as the country emerges from its worst recession since World War II.

The Isae Institute’s manufacturing sentiment index climbed to 77.1 from a revised 74.3 in September, the Rome-based research center said today. The October reading, the highest since September 2008, compared with a median forecast of 75.1 in a Bloomberg News survey of 16 economists.

“The combination of new orders and de-stocking are currently supporting the modest increase in production,” said Annalisa Piazza, an economist at Newedge Group in London. “Italy is on a moderate upward trend and further improvement will come in the near future.”

Industrial production posted a record rise in August as Europe’s fourth-biggest economy benefited from growing exports and government incentives to trade in old cars. As manufacturers stepped up production to rebuild stocks, output will rise this month after falling in September, employers’ association Confindustria said yesterday.

Italy’s economy expanded in the three months through September after five quarters of contraction, the country’s central bank said in its October bulletin. Italy will grow 0.6 percent in 2009 after shrinking 4.7 percent this year, Isae said on Oct. 14. The forecast compares with a projection for 0.8 percent growth by Confindustria.

French Confidence

The optimism of Italian manufacturers mirrored a rise in confidence in France, where an index of sentiment among factory executives climbed to the highest in more than a year, buoyed by demand outside Europe and state support for the car industry. German business confidence climbed to a 13-month high in October, improving the outlook for growth in Europe’s largest economy, Ifo institute said on Oct. 23.

Government incentives in Italy and across Europe have helped auto sales recover from a global decline caused by the recession, benefiting Italy’s biggest manufacturer, Fiat SpA.

On Oct. 21, the Turin-based carmaker that acquired a stake in Chrysler Group LLC unexpectedly reported a third-quarter profit. Its chief executive officer, Sergio Marchionne, said Fiat will lose 370 million euros ($556 million) in operating profit next year without the incentives.

The Italian government will wait until the release of new auto sales numbers next month before deciding whether to extend the incentives to 2010, Industry Minister Claudio Scajola said in an interview on Oct. 22.

Export Uncertainty

As France and Germany, Italy’s two biggest trading partners, emerged from recession in the second quarter, Italian exports to the European Union returned to growth in July before falling in August. Exports “haven’t shown a clear recovery over the summer,” the Bank of Italy said on Oct. 15.

“The Italian economy is largely dependent on exports,” Piazza said. “The current uncertainties on the global recovery might put a lid on business confidence going forward.”

As job losses mount, there are also risks to consumption in the $2.1 trillion economy. The number of employed Italians fell 1.6 percent in the second quarter, the biggest drop since 1994, while the jobless rate rose to 7.4 percent, the highest since 2005. The rate may exceed 10 percent in 2010 should the recovery remain weak, the Organization for Economic Cooperation and Development said last month.

The Bank of Italy said that unemployment will hold back gains in consumer spending in the coming months. Consumer confidence unexpectedly fell from a seven-year high in October on concern that rising joblessness may hit spending power, Isae said yesterday.

Manufacturers were more optimistic about the job market than consumers, today’s report showed. A sub-index measuring expectations on employment rose to minus 16 in October from minus 19.

Isae conducted its latest survey of 4,000 companies between Oct. 1 and Oct. 20. The research center revised its September reading from an initial 74.

To contact the reporter responsible for this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net