Bloomberg News

Italian Industrial Output Increases Most in More Than Decade

October 10, 2011

(Updates with GDP outlook starting in first paragraph, comments by economists in third, fifth paragraphs.)

Oct. 10 (Bloomberg) -- Italian industrial output rose the most in more than a decade in August, suggesting the economy avoided a contraction in the third quarter even as it grappled with contagion from Europe’s debt crisis.

Output advanced 4.3 percent from July, when it dropped a revised 0.3 percent, Rome-based statistics office Istat said today. Economists had expected an increase of 0.2 percent, according to the median of 18 estimates in a Bloomberg News survey. Output climbed 4.7 percent from a year earlier on a workday-adjusted basis.

“The upswing is at odds with the clear downward trend in industrial activity in Italy and it has to be seen more as a technical correction rather than as the harbinger of a solid rebound,” Annalisa Piazza, an economist at Newedge Strategy in London, said in a note to investors. “That said, it will help GDP growth” and allow the economy to avoid shrinking in the third quarter, she added.

Gross domestic product rose 0.3 percent in the second quarter from the three months through March, when it increased 0.1 percent. Italy’s credit rating has been lowered by the three main rating companies, starting with Standard & Poor’s on Sept. 19. Rising borrowing costs and Prime Minister Silvio Berlusconi’s “fragile” government mean that Italy may struggle to cut Europe’s second-biggest debt burden, at about 120 percent of GDP, S&P said.

‘Seasonal Effects’

“The strong increase in August” production “was, most probably, due to seasonal effects,” Chiara Corsa and Loredana Federico, Milan-based economists at UniCredit SpA, wrote in a note to investors. “Today’s outcome mitigates potential downside risks to our forecasts for a flat GDP growth.”

The government gave final approval last month to 54 billion euros ($73 billion) in deficit-cutting measures that convinced the European Central Bank to buy the nation’s bonds after borrowing costs surged to euro-era records amid concern that Greece may default. The austerity plan, coupled with a previous package of almost the same size, may weigh on growth.

On Sept. 20, the International Monetary Fund cut its growth forecast for Italy and said the nation will miss its goal of erasing the budget gap in 2013. The government lowered its forecast two days later, predicting GDP will rise 0.7 percent this year and 0.6 percent in 2012 rather than increasing 1.1 percent and 1.3 percent as forecast in April, respectively. The Finance Ministry kept its balanced-budget pledge.

This year “will be a year of sacrifice and transition” for Benetton Group SpA, Italy’s largest clothing company, Vice Chairman Alessandro Benetton said on Sept. 20. That trend “will change” in 2012, he added.

Istat originally reported that production decreased 0.7 percent in July. Third-quarter GDP data are due to be published on Dec. 21.

--With assistance from Giovanni Salzano and Lorenzo Totaro in Rome. Editors: Jeffrey Donovan, Andrew Atkinson

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To contact the reporters on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net.


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