Really this is just a brief follow up to this more extensive post yesterday, but as is hardly surprising in the present environment Italian business confidence declined to a two-year low in January as a bleaker economic outlook hurt consumer demand for manufactured products. The Isae Institute's business confidence index fell to 91.6 from a revised 91.7 in December. That is the lowest since December 2005, when the index was 91.4.
The economic outlook for Italy's economy has steadily deteriorated over the last year, and especially given the need to export to obtain growth and the euro's 14 percent increase against the dollar over the past year which has undoubtedly dammaged ex-EU exports at a time when rising oil prices are increasing inflation and manufacturing costs. Both the Bank of Italy and Confindustria, Italy's largest employers' lobby, have cut their growth forecast for 2008 to 1 percent, about half the pace of last year.
Another factor threatening confidence going forward is the collapse of Prime Minister Romano Prodi's government on Jan. 24 after 20 months in power. President Giorgio Napolitano ends four days of consultations with Italy's main political parties today, and we are still waiting to see if a new government can be cobbled together or if new elections will be held.