Italys Upbeat Consumers – US-FOREX.US
Italian consumers don’t have it easy: Unemployment is soaring and gross domestic product expected to fall by more than 5% this year. Still, they seem to be upbeat. Consumer confidence in the Mediterranean country rose more sharply than previously thought in July, its highest level since November 2007.Seasonally adjusted consumer confidence index rose to 107.5 from 105.4 in June, exceeding the highest forecasts in a Reuters survey of analysts that spanned from 102 to 107, with a median of 105.9.And although the rise could be seen as an encouraging sign that reflects optimism about the national economy, Italians’ expectations could change in light of a dire future for the job market.”An increase in consumer confidence needs to be taken with caution,” said Natascha Gewaltig, director of European economics at Action Economics in London. “We will see more increases in unemployment despite better consumer expectations about the general outlook of the economy.”"Production is still down by a third and companies will be pushed to lay off more people well into next year,” said Gewalting, adding that she expects unemployment to rise to 8.8% this year and climb over 9% in 2010.Economists expect that a rise in unemployment will prompt consumers to save, thus weighing on consumption, despite a fall in inflation.
Raj Badiani, an economist with IHS Global Insight in London, shared Gewaltig’s concerns. He said he anticipated a gradual recovery in Europe’s domestic consumer spending, which accounts for about 60% of Italy’s economic output of about 1.9 billion, but doesn’t anticipate a “strong recovery” there. Badiana expects unemployment to hit a peak of 9.2% by the end of 2010, in line with Action Economics’ forecast. Economists expect the Italian GDP to fall between 5% and 5.5% this year, following last year’s 1% drop, which would make it the first time in postwar history that Italy has posted two consecutive years of falling GDP.Though Italy was not as exposed to the housing bubble as Spain and Ireland were, the country’s economy has traditionally depended on exports-which represented 27.9% of total GDP in 2008 and 23.9% in the first quarter of 2009. But Italy’s export market collapsed following the global financial crisis and a slump in global trade and production worldwide.The iShares MSCI Italy Index Fund
, an exchange-traded fund that tracks Italian stocks, was down 2.7%, at 17.13, on Tuesday afternoon in New York.
Thomson Reuters contributed to this article.