Italy in a recession, Confindustria says

Italy’s industrial employers’ association Confindustria said on Friday that the country was already in a recession and that GDP will continue to shrink for the rest of the year.

Confindustria made its observation after national statistics bureau Istat reported that Italy’s industrial output fell 0,6 per cent in July, compared to the same month in 2007, and that the drop would have been much higher, 3,2 per cent, if the same number of days had been worked this July. The July decline meant that output for the first seven months of the year was 1,4 per cent lower than the same period in 2007 and down 1,6 per cent when adjusted for the number of working days.

”The drop in July was very negative and would appear to indicate that the decline in GDP in the third quarter will be much worse than expected,” Confindustria’s studies center (CSC) said.

CSC added that taking into account the trends in business confidence, industrial orders and the superindex of the Organization for Economic Cooperation and Development (OECD) it was ”quite clear that there is no possibility of any (GDP) improvement in the third quarter. It is also more than probable that GDP will slip for all of 2008”.

Istat on Wednesday revised its figures for the second quarter of 2008 and said GDP fell by 0,1 per cent over the same period in 2007, its worse year-on-year result since the third quarter of 2003, when GDP also fell by 0,1 per cent. Last month Istat had predicted zero growth for the second quarter.

Istat confirmed that GDP sank by 0,3 per cent over the first quarter of the year, its poorest performance since the last quarter of 2007. An economy is formally in a recession when GDP falls for two consecutive quarters.

According to CSC, a recovery, thanks to falling oil prices and a rising dollar, will not begin until ”well into 2009”.

”Italy will be able to benefit from this recovery if it is able to put its manufacturing sector, which is going through a profound transformation, in a position to meet the demand at home and abroad,” CSC observed. ”It is essential that competitiveness improve in all sectors and that a new approach to contracts be adopted which can jump start productivity, which would in turn create the conditions for real earnings to grow,” CSC concluded.

In the last few years Italy has been laggard in growth vis-à-vis its competitors in the European Union, because of a lack of liberalizations, high tax pressure, high public expenditure and a plethoric and inefficient public sector. The Prodi government (in office from May 2006 to May 2008) has squandered a strong global economic recovery by increasing taxes, to satisfy its Far-Left wing. The current centre-right government, led by Silvio Berlusconi, is expected to thoroughly reform the public sector and to turn Italy into a Federal Republic, under the push of the Northern League party, led by Umberto Bossi. Curiously, the government and the Prime Minister enjoy a very high approval rate even with such a dire economic situation. A decoupling likely not expected to last.

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