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Wednesday, July 16, 2003

Italy in Recession?

The latest industrial production figures seem to suggest that Italy could be entering into recession. Certainly the short term outlook doesn't look too promising. Remember Italy is my deflation litmus test. The coutry everyone else has marked on their card as 'out of danger', but which, if the demographic thesis has any life in it, should be among the next to fall. Meanwhile Guilio Tremonti, Italy's finance minister blames everything on disloyal competition from the Chinese.

Italian industrial production plunged 1.6 percent in May, its steepest monthly fall in more than four years and the newest sign that the country, Europe's fourth-biggest economy, could slip into recession. The production of consumer and investment goods led the decline, followed closely by cars and small trucks. Fiat, the struggling carmaker that is Italy's largest private-sector employer, is confronting its worst-ever slump with a plan that calls for more than 12,000 layoffs and the shutting of factories in Italy and abroad.

"The fall in industrial production sets off alarms on many fronts, including in the labor market," said Tito Boeri, an economics professor at Bocconi University in Milan and a founder of a Web site that tracks developments in Italy's economy. The Italian government has had little success in stimulating the economy, and three months ago it cut in half its estimate for growth this year, to 1.1 percent. May industrial production tumbled an adjusted 4.4 percent compared with the level a year ago. The latest numbers put to rest expectations that an 1.8 percent jump in output in April reflected new momentum in the economy.

Most economists now say that the government's growth forecast for this year cannot be reached and will have to be lowered again. That outlook was based on expectations of a strong rebound in the second half of the year; that now seems increasingly remote. The economy shrank 0.1 percent in the first quarter. A recession is defined as two consecutive quarters of negative growth. Italy, like most industrialized economies, has been hurt by a rise in crude oil prices the last year, and one of the few Italian industries to show a rise in production in May was oil refining, according to statistics released by the government's statistics office, Istat.

The drop in industrial production is the latest in a line of problems that have confronted Italy's prime minister, Silvio Berlusconi. He touched off a diplomatic crisis this month when he compared a German member of the European Parliament to a concentration camp guard. And last week, a tourism under secretary made remarks that portrayed German tourists as beer-guzzling boors. The official later resigned. The prime minister has also been busy patching up disagreements among his coalition partners at home.

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