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Italian business confidence finally returns to pre-crisis levels, but consumers still cautious

by Luca Orlando

The positive balance between companies that are optimistic or pessimistic on expectations for future manufacturing employment in April shows that the March performance for Italian business confidence was not just temporary. For the historical series of national statistics office ISTAT April was the highest reading since 2002.

This is the most significant sign of a recovery in confidence among companies, for which the overall index rose to 107.4 in April from 105.1, reaching its highest since October 2007, before the start of the financial crisis.

The result carries weight because it is fruit of widespread progress that involves manufacturing and retail sales as well as construction and services.

If for industrial production and gross domestic product (GDP) the gap compared to pre-recession levels is still relevant, in terms of expectations, the indications arriving from ISTAT are more comforting than ever, with a continuing of the trend started in January.

The surge in the manufacturing industry (the fifth consecutive rise, bringing the index to the highest level since January 2008) is linked in particular to growth in intermediate goods, while consumer and capital goods fell back slightly. The latter nevertheless saw a leap of almost three points in the previous month, when the sector index reached the highest since March 2008.

These qualitative signs are not yet being backed up by similar results in terms of industrial production, which is up 0.9% in the first two months of the year.

However, the most recent indications from investments in capital goods point to a probable acceleration that is already underway, with a range of benefits for a vast supply chain for the mechanics industry and others. The optimism of business executives, as said, is translating also to an improvement on the employment front, where the balance between optimistic and pessimistic responses improved across the board, in particular in the capital goods sector; in January the balance was at zero, now it has reached 10, its highest ever in the ISTAT series.

What was also significant in April was the growth for the construction sector, which was the most devastated by the crisis. Here the confidence index improved by almost five points, reaching its highest since May 2008. This progress concerned both orders and expectations for employment, forecasts that also in this case are not followed by a similar performance in terms of real production.

Still, even if it is difficult, the overall picture for Italian companies is improving, as shown by the ongoing reduction in bankruptcies (-16.8% in 2017) or the stabilization of the system of payments, with serious delays declining at double digit rates.

It is also comforting to see the BRICS, the “sick men” of non-EU exports in 2016, guaranteeing doubt digit growth in demand for Made in Italy goods, which in three months have produced an additional €5 billion in turnover.

While in terms of business confidence we may be almost ready to pop the champagne corks, the picture is less rosy for consumer morale, with the index slipping back one decimal compared to the previous month.

And there are varying signals coming from the different components of the index: views on the economic climate and the future deteriorated while views on the current climate and families' personal situation improved. The overall average, while under the highs of last year, is in any case above pre-crisis levels, and the outlook for unemployment, though worsening slightly, is decisively less gloomy. In the most difficult moments (June 2012) those who expected to see a fall in unemployment were just 2.3% of the sample. Today they have come close to 18%.