Confidence retreating in July in Italy

Both consumer and business confidence fell more than expected in July in Italy, after jumping in June,a recent research conducted by the Intesa Sanpaolo group has revealed.

Consumer confidence declined to 106.5 from 109.3 in June (which was close to the highest in almost 13 years).

The breakdown shows that the worsening is widespread. Yet, as usual it regards the most volatile components ie the national climate (rather than the personal one) and expectations about the future (more than the current situation).

Households were less upbeat about prospects for employment: after reaching the second best reading since 2002 last month (10), expectations about unemployment worsened again to 28 in July.

All other components declined, with the relevant exceptions of family budget and both current and future savings.

In particular, expectations about the general economic situation fell again into negative territory (-4) for the first time since last January (after reaching in February and March the best readings in 20 years).

Perceptions about past inflation became slightly less negative, while expectations for the future deepened in the red.

The composite business confidence index fell too in July, to 104.3 from 104.7 in June (revised upwards from 104.3 previous). Yet, it remains the second best reading (after June’s figure) since pre-crisis levels (May 2008).

The breakdown by sector is mixed: morale declined in manufacturing (to 103.6 from 103.9) and to a higher extent in construction (to 117.6 from 119.7, which in any case was the highest in almost 7 years) but rose in services (to 110 from 109.2) and retail trade (to 106.5 from 105.9); in both services and retail trade, July’s levels are a record since 2008.

In particular, in the manufacturing sector the breakdown is not that blue: both current and expected production was unchanged, and current assessment about orders improved (in particular from abroad) – while orders outlook was less upbeat. The composite index was dragged by a rise in inventories and a decline in the outlook regarding both the economy and employment.

In short, the July’s retreat in both business and consumer confidence in July is not particularly worrying in our view, as:

1) the survey was affected by the negative impact of the Greek crisis (which ultimately yielded an agreement only on July 13th, while the survey was carried out from 1st to 16th July), but the effect should be almost entirely reabsorbed with the August reading;

2) the breakdown of the surveys, in particular in the business sector, was mixed and not so bad;

3) the levels of both consumer and business confidence remain above the historical average and close to the highest since pre-crisis levels.

So, the data is not inconsistent with our view of Italian GDP maintaining a 0.3% qoq pace in the foreseeable horizon.

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