Italian business mood lower than early 1990s

Italian business confidence is at its lowest ebb in nearly 20 years, a survey published on Monday revealed, amid signs that the country faces a deep recession well into next year.

The outlook is deteriorating despite exhortations by the government to consumers to keep spending, to banks to keep lending and to companies to keep producing their goods. Those appeals appear to be having no effect.

Italy, the third largest economy in the eurozone, is technically already in a recession. Indeed, it has suffered a decade of sluggish growth that has left its manufacturing base uncompetitive against producers such as China. Some economists predict that the economy could shrink by up to 2 per cent in 2009.

The latest data confirm that gloomy prognosis. The Institute for Studies and Economic Analysis in Rome (ISAE), which compiles monthly surveys of sentiment among 4,000 companies across a swathe of Italian industry, published a business confidence survey that showed industrialists were pessimistic on the performance of the economy.

The institute's index of business confidence was 66.6 in December, the lowest level it has reached since ISAE began compiling data in 1991. The index is now at a level not plumbed even during the recession of the early 1990s, which caused a big shake-out of Italian manufacturing industry.

"The crisis has spread to all the principal productive sectors and is being felt nationwide," the institute said.

The institute found that 13 per cent of Italian companies were unable to secure adequate credit from their banks in the past month.

Industry bodies say this is disproportionately affecting the small and medium enterprise sector, the backbone of the Italian manufacturing economy.

The government is putting intense pressure on banks to maintain lending to these enterprises.

Another trend is a series of credit downgradings of companies, regions and cities in the past few weeks as business conditions deteriorate and debt-servicing becomes problematic.

The most notable casualty so far is the wealthy city of Milan, the country's financial and industrial capital, which is struggling to service its €3.8bn ($5.4bn, £3.7bn) of borrowings.

Moody's Investors Service cut Milan's creditworthiness rating last week to Aa3 from Aa2.

The rating agency said "fiscal pressures associated with tight operating performance and a high debt burden" were the reasons for the downgrading.

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