Bloomberg News

Italy’s Jobless Rate Rose to Highest Since 2004 in December

February 03, 2012

(Updates with comment by economist in fourth and 11th paragraphs, GDP forecasts in seventh. For more on the sovereign debt crisis, see {EXT4 <GO>}.)

Jan. 31 (Bloomberg) -- Italy’s jobless rate rose to the highest in eight years in December as austerity measures meant to fight the debt crisis helped push the region’s third-largest economy toward a recession.

Unemployment climbed to 8.9 percent, the highest since the data series began in January 2004, from a revised 8.8 percent in November, national statistics institute Istat said in a preliminary report today in Rome. Economists had expected a rate of 8.7 percent, according to the median of 9 estimates in a Bloomberg News survey.

Prime Minister Mario Monti last month pushed through 20 billion euros ($26 billion) in tax increases and spending cuts that have further choked growth. The economy shrank 0.2 percent in the third quarter and the government has forecast another contraction in the final three months of last year, meaning Italy may already be in its fourth recession since 2001.

“We are seeing all the predictable signs of Italy’s deepening recession -- rising unemployment, non-performing loans trending up, and credit standards getting tighter,” Vladimir Pillonca, an economist at Societe Generale SA in London, said in an e-mail. “We are barely at the initial phase of Italy’s recession, and it will get much worse.”

Plunging Confidence

Italian business confidence fell in January to the lowest in more than two years while consumer confidence held at a 16- year low. Monti’s austerity measures included a cut in pension spending, a crack down on tax evasion and higher levies on fuel, leaving Italy with Europe’s highest gasoline prices.

Fiat SpA, Italy’s biggest manufacturer, shut down its Termini Imerese factory at the end of last year as part of a plan to reduce costs and improve productivity in Italy as sales in the country slump. The Turin-based company agreed with unions to pay about 21 million euros to support early retirement for about 640 workers.

Italian growth has averaged about 0.2 percent annually in the decade to 2010, compared with 1.1 percent in the euro area. The International Monetary Fund forecasts Italy will shrink 2.2 percent this year, compared with the government’s prediction of a 0.5 percent contraction.

Crisis Fallout

Monti pushed through a package to boost the economy this month by opening up so-called closed professions such as pharmacists and notaries. The premier says spurring the economy will help Italy tame its 1.9 trillion-euro ($2.5 trillion) debt and withstand the fallout from the region’s sovereign crisis that led Greece, Portugal and Ireland to seek bailouts.

Italian 10-year borrowing costs, after soaring past the 7 percent level that led those three countries to seek rescues, have fallen to around 6 percent since the European Central Bank offered banks unlimited three-year loans last month. The ECB has also continued to prop up debt markets by purchasing bonds of countries such as Italy and Spain.

Some Italians are defying Monti’s calls for shared sacrifices now to spur future prosperity. A wildcat strike by truck drivers last week clogged traffic on Italian highways, forcing Fiat to halt car production and leaving some cities short of gasoline and food.

“The best thing that authorities can do is to implement growth-enhancing reforms so that when the effects of fiscal tightening and uncertainty shocks taper out, Italy can gradually return to positive growth,” Pillonca said. “In the absence of substantive progress on this front, Italy will merely crawl back toward another decade of stagnation.”

Labor Overhaul

Monti’s next initiative is aimed at overhauling Italy’s rigid labor laws to encourage hiring of young people and women. Joblessness among those between ages 15 and 24 dropped to 31 percent in December from a revised 31.2 percent in the previous month, Istat said today.

Monti is seeking to create more incentives for companies to hire, while also giving employers more freedom to cut staff when the economy wavers. Labor Minister Elsa Fornero, who resumes talks with unions and employers on Feb. 2, has said she hopes to have an agreement on the changes within a month.

Istat had originally reported a jobless rate of 8.6 percent in November.

--Editors: Jeffrey Donovan, Andrew Davis

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

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net


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