Italy consumer, business confidence drops

AFP - [email protected]
Italy consumer, business confidence drops
European Central Bank President Mario Draghi in the Committee on Economic and Monetary Affairs at the European Parliament in Brussels, on November 26, 2018. Photo: François Walschaerts/AFP

Consumer and business confidence in Italy dropped in November as the country's populist government tussled with Brussels over its big-spending budget plans.


The business confidence index fell to 101.1 points from 102.5 in October -- its fifth monthly drop in a row -- while consumer confidence dropped to 114.8 points from 116.5, the national statistics institute said.

On Monday, the populist coalition -- the anti-establishment Five Stars Movement (M5S) and far-right League -- appeared open to reducing its draft budget deficit, boosting hopes Rome could ease a stand-off with the European Union.

The European Commission has rejected the draft budget because it sharply increases spending and the deficit, which would add to Italy's already massive mountain of debt.

News that the 2019 budget deficit may be limited to 2.2 percent of gross domestic product (GDP), rather than 2.4 percent helped boost the markets sharply.

Analysts warned however that the devil would be in the detail.

"Forecasting fiscal deficits to a decimal place accurately is impossible given it's impossible to forecast economic growth," said Rabobank senior strategist Michael Every.

"One can interpret the Italian government as having surrendered, or as saying 'let's just say it's going to be 2.2 percent and get on with spending'.

"There is as yet no climb-down on pension reform or citizens' income," he said, referring to key electoral measures the parties have pledged to implement no matter what.

The concern is that stress in Italy caused by the populists' big-spend budget could spread to other European countries which are only just recovering from the eurozone debt crisis.

On Monday, European Central Bank head Mario Draghi warned, without naming names, that one country's unsustainable economic policies could be a danger for the whole eurozone.

"The euro area can be exposed to the risks originating from unsustainable domestic policies resulting in excessively high levels of debt, financial sector vulnerabilities and/or a lack of competitiveness," he said.

"Through financial, confidence and trade channels, these risks can spill over to other countries which have similar weaknesses or strong links with the country where the risk originated", he told European Parliament lawmakers.

Draghi did not directly address the continuing showdown between Rome and Brussels, but did however say that all countries' spending plans looked, "with perhaps one exception, pretty expansionary" or favourable to growth.



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