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Wednesday, November 21, 2007

Italy Q3 2007 GDP and November 2007 Consumer Confidence

Well, we had a positive surprise on the upside from Italy for a change in Q3, since Italian economic growth accelerated, powered it seems by consumer spending on services and manufactured goods, according to the report recently released by ISTAT (we really have to wait till early December to get a clearer picture).

Gross domestic product rose 0.4 percent from the second quarter, when it grew 0.1 percent, and expanded 1.9 percent when compared with Q3 2006.

Where we go from here is really anyone's guess, but there must be strong downside risks. Claus Vistesen has quite a comprehensive summary of the Q3 eurozone situation here. Summing up the Italian performance Claus says the following:

Finally, before summing up we have of course Italy where Bloomberg told us that the Italian economy managed to expand in Q3. But alas what does that matter when the number we have is 0.4% q-o-q which follows, as can be observed above, a o.3% and 0.1% reading q-o-q in Q1 and Q2 respectively. Even those amongst my readers with next to none inclination towards math exercises should have no trouble calculating that the average q-o-q growth rate now stands at a measly 0.27% q-o-q. If we annualize the current figures (i.e. assume 0.4% in Q4) Italy is looking at a annualised growth rate of 1.2% (the official forecast is for 1.9% y-o-y which is well below its peers). However, do take note that these annualised figures rest on a status quo situation which quite frankly seems highly unlikely at this point. In this way, the evolution we are now seeing in Italy is not at all surprising for me and confirms the general perception that when economic fundamentals turn against the Eurozone Italy is one of the first economies to suffer.

Morgan Stanley's Vladimir Pillonca is hardly optimistic either:

The Italian – and global – growth outlook seems to be darkening every day, despite the expected bounce-back of growth in the third quarter. We forecast Italian growth to slow sharply next year, to just 1.2%Y, from 1.8%Y this year, and we don’t anticipate a recovery to gather traction until the second half of next year. Risks are skewed to the downside. The possibility of a growth recession next year – defined as two or more quarters of negative quarter-on-quarter growth – is not a remote one.

as he says:

Consumer spending looks set for a slowdown after an unsustainably strong first half of the year. After all, wages are barely rising once we account for inflation, and both tax pressure and interest rates have risen in the recent past. Forward-looking consumers are likely to react to a more uncertain future, by allowing their savings to rise and their consumption growth to fall.

Is he clairvoyant or something, I ask myself , since this is exactly what the most recent ISAE survey is showing consumer expectations to be (for a rise in savings that is) at this point (and Pillonca's piece was written before this data release).

In fact Italian consumer confidence surprisingly rose to a six-month high in November. The Rome-based Isae Institute's index, which is based on a poll of 2,000 households, rose to 107.6, the highest level since May, from 107.3 last month. However if we look at the chart we will see that the index has hardly budged since September, and that we are still in comparatively low territory.

One surprising detail in this months report is, however, that consumers are saying that they are more likely to save their money than spend it in the near future (as Pillonca imagined they would), possibly becuase they are anticipating that a significant economic slowdown is now close in Italy.

Of particular note is the fact that a sub-index measuring household confidence in the ability to save rose to 143 from 132, while another measuring the ability to put money away in the future rose to minus 76 from minus 86. On the other hand, consumers grew ever more negative about future growth, with this component of the index falling to minus 35 from minus 29 in October.

I will try and find the time to do a more in-depth analysis of Italian GDP when the full results are published in early December.