Italy's economy grew in the first quarter, avoiding a fourth recession in a decade, even as a slump in consumer spending clouds the outlook for the rest of the year.
The $2 trillion economy, Europe's fourth-biggest, expanded 0.4 percent after contracting the same amount in the fourth quarter when consumer spending fell 0.2 percent, Rome-based statistics office Istat said today. The first-quarter expansion was twice the median forecast of 22 economists surveyed by Bloomberg.
Record oil prices and food costs have pushed the inflation rate to the highest in more than a decade, sapping confidence among consumers who are also facing increased borrowing costs. Newly-elected Prime Minister Silvio Berlusconi's first act after taking office this month was to pass tax cuts on property and overtime pay and offer to freeze mortgage payments for homeowners at risk of default.
"A relatively good figure for the first quarter doesn't mean the trend will be positive,'' said Paolo Pizzoli, senior economist at ING Bank NV in an interview with Bloomberg television today. He expects growth of 0.1 percent in the second and third quarters.
Finance Minister Giulio Tremonti said this week 2008 growth will be almost zero.
Germany, France
The economies of Italy's biggest trading partners, Germany and France, so far have appeared more resilient. Gross domestic product in Germany rose 1.5 percent from the fourth quarter, the fastest pace in 12 years. French GDP rose 0.6 percent, twice the rate of the fourth-quarter.
Still, there are signs that the stronger euro and the slowdown in the U.S. economy triggered by the collapse of the subprime mortgage market is beginning to weigh on growth in the second quarter. French consumer spending unexpectedly fell for a second month in April, a report by Insee, the Paris-based statistics office said today.
The price of crude has doubled in the past year, reaching a record $135.09 a barrel yesterday, and Italian drivers are now set to pay more than 1.5 euros a liter for gas, or more than $9 dollars a gallon. Companies are also feeling the pain. State- controlled airline Alitalia SpA had 215 million euros ($338 million) of pretax losses in the first quarter, more than 2 million euros a day, partly from the surge in fuel costs.
Italy's growth prospects are being further dimmed by the euro's gain against the dollar, which makes its exports more expensive in the U.S., its third-biggest market. The single currency has gained 6 percent in the past six months and trades for about $1.57. Italian exports plunged 1.3 percent in the fourth quarter, Istat said today.
Sales Decline
Bulgari SpA, the world's third-largest jeweler, reported this month first-quarter earnings that missed analysts' estimates. Exchange-rate fluctuations sliced about 4 percentage points off sales in the quarter, mainly because of the dollar, the company said.
"A euro that is overvalued against the dollar creates an unsustainable penalty for our exports,'' Emma Marcegaglia, president of Italy's employers lobby Confindustria, said in a speech yesterday in Rome. "The ECB shouldn't underestimate the slowdown.''
Berlusconi's return to power, and his implementation of the tax cuts and mortgage relief appear to have had an impact on consumer confidence. Optimism among Italians jumped in May to the highest level this year.
The new government on May 21 announced the elimination of the country's main property tax and a reduction in levies on overtime pay, in an effort to increase spending and productivity.
Italy slipped to 46th in the World Economic Forum's 2007-2008 competitiveness ranking, trailing Latvia and Bahrain. The country came last in terms of labor productivity -- a key measure of economic growth and competitiveness -- among the 30-member Organization for Economic Cooperation and Development. No other European country has been through three recessions in five years.
The International Monetary Fund in April cut its Italian growth forecast to 0.3 percent for this year and the next, which would make Italy the worst-performing economy among the Group of Seven nations and the 15 countries sharing the euro. Italy, will grow at half the pace of the U.S. and a fraction of the 1.2 percent growth rate for the euro region, the IMF said.
The Italian statistics office didn't provide a breakdown of the GDP figure in the preliminary estimate for the first-quarter. Istat will release its final report on Italian GDP on June 10.
The $2 trillion economy, Europe's fourth-biggest, expanded 0.4 percent after contracting the same amount in the fourth quarter when consumer spending fell 0.2 percent, Rome-based statistics office Istat said today. The first-quarter expansion was twice the median forecast of 22 economists surveyed by Bloomberg.
Record oil prices and food costs have pushed the inflation rate to the highest in more than a decade, sapping confidence among consumers who are also facing increased borrowing costs. Newly-elected Prime Minister Silvio Berlusconi's first act after taking office this month was to pass tax cuts on property and overtime pay and offer to freeze mortgage payments for homeowners at risk of default.
"A relatively good figure for the first quarter doesn't mean the trend will be positive,'' said Paolo Pizzoli, senior economist at ING Bank NV in an interview with Bloomberg television today. He expects growth of 0.1 percent in the second and third quarters.
Finance Minister Giulio Tremonti said this week 2008 growth will be almost zero.
Germany, France
The economies of Italy's biggest trading partners, Germany and France, so far have appeared more resilient. Gross domestic product in Germany rose 1.5 percent from the fourth quarter, the fastest pace in 12 years. French GDP rose 0.6 percent, twice the rate of the fourth-quarter.
Still, there are signs that the stronger euro and the slowdown in the U.S. economy triggered by the collapse of the subprime mortgage market is beginning to weigh on growth in the second quarter. French consumer spending unexpectedly fell for a second month in April, a report by Insee, the Paris-based statistics office said today.
The price of crude has doubled in the past year, reaching a record $135.09 a barrel yesterday, and Italian drivers are now set to pay more than 1.5 euros a liter for gas, or more than $9 dollars a gallon. Companies are also feeling the pain. State- controlled airline Alitalia SpA had 215 million euros ($338 million) of pretax losses in the first quarter, more than 2 million euros a day, partly from the surge in fuel costs.
Italy's growth prospects are being further dimmed by the euro's gain against the dollar, which makes its exports more expensive in the U.S., its third-biggest market. The single currency has gained 6 percent in the past six months and trades for about $1.57. Italian exports plunged 1.3 percent in the fourth quarter, Istat said today.
Sales Decline
Bulgari SpA, the world's third-largest jeweler, reported this month first-quarter earnings that missed analysts' estimates. Exchange-rate fluctuations sliced about 4 percentage points off sales in the quarter, mainly because of the dollar, the company said.
"A euro that is overvalued against the dollar creates an unsustainable penalty for our exports,'' Emma Marcegaglia, president of Italy's employers lobby Confindustria, said in a speech yesterday in Rome. "The ECB shouldn't underestimate the slowdown.''
Berlusconi's return to power, and his implementation of the tax cuts and mortgage relief appear to have had an impact on consumer confidence. Optimism among Italians jumped in May to the highest level this year.
The new government on May 21 announced the elimination of the country's main property tax and a reduction in levies on overtime pay, in an effort to increase spending and productivity.
Italy slipped to 46th in the World Economic Forum's 2007-2008 competitiveness ranking, trailing Latvia and Bahrain. The country came last in terms of labor productivity -- a key measure of economic growth and competitiveness -- among the 30-member Organization for Economic Cooperation and Development. No other European country has been through three recessions in five years.
The International Monetary Fund in April cut its Italian growth forecast to 0.3 percent for this year and the next, which would make Italy the worst-performing economy among the Group of Seven nations and the 15 countries sharing the euro. Italy, will grow at half the pace of the U.S. and a fraction of the 1.2 percent growth rate for the euro region, the IMF said.
The Italian statistics office didn't provide a breakdown of the GDP figure in the preliminary estimate for the first-quarter. Istat will release its final report on Italian GDP on June 10.
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