Monday, November 10, 2008

Industrial Output Falls Again In September, Making An Italian Recession A Certainty

Italy probably entered a recession in the second half of 2008, International Monetary Fund and European Central Bank board member Mario Draghi indicated last month. After GDP contracted 0.3 percent in the second quarter, ``the most recent indicators confirm negative signs,'' Draghi said on Oct. 21. Europe's fourth- biggest economy will shrink 0.1 percent this year and 0.2 percent next year, the IMF said separately.

Italy's industrial production fell by the most in almost 10 years in September, confirming my impression that Europe's fourth-biggest economy is already in a recession. Output was down a seasonally adjusted 2.1 percent from August, the national statistics office said this morning (Monday).

Year on year, working day adjusted output fell 5.7 percent.

Italy's economy contracted 0.3 percent in the second quarter and is now in the midst of its fourth recession so far this century, or at least all the data we are seeing point that way. Most of the forecasts expect either stagnation (EU commission, Italian government) or contraction (Confindustria) in both 2008 and 2009. The pace of the decline is faster than most of the rest of Europe (excluding Spain), and the slump in sales has forced Italy's largest manufacturer, Fiat, to consider cutting the company's financial goals for the first time since the company returned to profitability in 2005.

Gross domestic product will stall for two years straight after expanding 1.5 percent last year, the European Union's executive arm said in a report published in Brussels today. Italy last stagnated in 2003, according to the national statistics office, Istat.

October Production Also Seems To Have Fallen

Italian manufacturing activity continued to contract - and at the fastest rate in at least 11 years - in October according to the latest Markit/ADACI PMI survey. The Markit Purchasing Managers Index fell to 39.7, its lowest since the series began in 1997, down from 44.4 in September. The Italian manufacturing PMI has now not been above the 50 mark separating growth from contraction since February and the latest data showed activity falling at an accelerating pace as demand shrank while jobs were shed at the fastest rate in the history of the survey. As we can see in the chart, the PMI has been giving a pretty reliable picture, and it looks virtually certain that, at least as far as manufacturing goes, the worst is yet to come.

Other recent indicators have also been far from encouraging, with October business confidence hit its lowest point since September 1993, when the economy seized up after Italy was rocketed out of the European Exchange Rate Mechanism a year earlier.

Falling Retail Sales

Euro-Zone retail sales fell again in October, with the index dropping from 46.2 in September to 44.3 in October, according to the latest retail PMI, the fifth consecutive month of sales contraction and one of the steepest declines recorded since the survey began five years ago. Sales fell in Germany, France and Italy as retailers reported the adverse effects of the global financial market turmoil, rising job market insecurity and stretched household budgets. Italy saw the steepest drop in retail sales of the three countries covered. The rate of decline accelerated sharply during the month with the month-on-month decline in the index the largest yet recorded by the Italian survey. (The index plunged from 42.8 to 34.8).

Confindustria recently said Italy was in "the darkest moment of the economic and financial crisis" and that government action was urgently needed to halt a recessionary spiral, noting in saying so that Italy's huge debt burden acted as a real brake on its options, and who am I to disagree. And is Italy actually in rcession? Well ISTAT are about to publish its first preliminary estimate for Italy's third-quarter GDP on November 14, so we will all soon know.

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