Country Report Italy June 2009

Outlook for 2009-10

• Italy's right-of-centre coalition government, led by Silvio Berlusconi, faces a major challenge to limit the impact of the global crisis on Italy's rapidly deteriorating economy and keep its fragile public finances under control.
• Government cohesion will be hindered by divisions in the ruling coalition, but the Economist Intelligence Unit expects it to remain in office. Mr Berlusconi has a comfortable parliamentary majority and the centre-left is in disarray.
• GDP contracted by 1% in 2008. Our baseline forecast is that it will contract by a further 4.6% in 2009 and by 0.5% in 2010.
• The fiscal deficit is forecast to rise from 2.7% of GDP in 2008 to 5-5.5% of GDP in 2009-10. The public debt/GDP ratio is expected to be about 120% by the end of 2010, up from about 106% in 2008.
• Much larger deficits cannot be ruled out as our forecast assumes that the minister of the economy, Giulio Tremonti, will resist pressure for tax cuts to boost the economy and that interest rates do not rise sharply.
• Inflation (EU harmonised measure) will average 0.6% in 2009 and 0.9% in 2010, well down on 3.5% in 2008, reflecting weak demand and lower commodity prices.

Monthly review

• In the European Parliamentary elections on June 6th-7th Mr Berlusconi's Popolo della Liberta (PDL) party obtained 35% of the vote, short of his target of 40%, but still well ahead of the centre-left Partito Democratico on 26%.
• Mr Berlusconi's personal life dominated the election campaign as the prime minister became embroiled in a scandal over the nature of his relationship with an aspiring teenage model.
• Despite a marginal improvement in May compared with the same month of 2008, Italy's state sector borrowing requirement was 56.3bn in the first five months of 2009, 17.1bn higher than in the corresponding period in 2008.
• Italian GDP declined for the fourth consecutive quarter in January-March 2009. It fell by 2.4% quarter on quarter and by 5.9% year on year.
• In the second quarter of 2009 there have been tentative signs that the rate of decline may be slowing. Italian business confidence rose for the second consecutive month to a six-month high in May.
• Italian consumer confidence remained at its highest level in 18 months as slowing inflation offset concerns about unemployment.
• Italy's EU harmonised annual rate of inflation was 0.8% in May, the lowest rate since the index began in 1996.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22