BUSINESSWEEK ONLINE : OCTOBER 16, 2000 ISSUE
BUSINESS OUTLOOK Italy: Clouds Thicken over the Economy Two percentage points of interest-rate hikes by the European Central Bank and a 50% jump in oil prices, all in the past year, are weighing on the Italian economy. The export-driven upswing in the euro zone's third-largest economy has always been fairly narrow, with consumer spending never quite getting into the act. Now, with exports already slowing, and with growth in Italy's European trading partners expected to cool off a notch in the second half, Italy may struggle to meet the government's 2.8% growth projection for 2000. Real gross domestic product in the second quarter grew only 0.3% from the first quarter, sharply below that quarter's 1.1% advance. Real GDP is up 2.6% from a year ago. Weaker net exports accounted for the second-quarter slowdown, while consumer spending continued to languish. The third quarter is off to a rocky start. Industrial production plunged 0.8% in July. And consumer confidence, which had hit a two-year high in August, dropped in September, despite ongoing improvement in the labor markets. Unemployment in July fell to a seven-year low of 10.5%, amid strong job growth in construction and services, including gains in permanent jobs, not just part-time positions. However, as oil prices soared in September, confidence readings on prospects for jobs, inflation, and economic growth all deteriorated. A key reason: Households are losing purchasing power. Inflation picked up to 2.7% in September, but through August, hourly wages were growing only 1.8%. Wage contracts are linked to the government's previous inflation target, which for 2000 was set at a very conservative 1.2%. The risk of higher wage demands in coming months is rising as employees bargain for catch-up increases for 2001. Strike activity by transport workers is already on the rise, after a generally quiet year for unions. However, it's a two-edged sword: Consumers may emerge from the autumn wage round with more purchasing power, but faster wage growth will likely fuel core inflation next year. By JAMES C. COOPER & KATHLEEN MADIGAN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Italy: Clouds Thicken over the Economy CHART: The Cooling Trend Will Continue INTERACT E-Mail to Business Week Online

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