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Italian Business Confidence Recovers

James Boston
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Italian Business Confidence Recovers

Business Confidence in the Italian economy is enjoying a welcome uptick this morning following the sharp fall off experienced in the metric over the summer months. The gain, albeit moderate, represents an end to a four month downward trend in sentiment in the Eurozone’s third largest economy. The latest reading of 96.0 for the month of October compares favourably to the September recording of 95.1 and positively surprised analysts that had been anticipating the number to further fall to 94.9.

The improving business climate however may yet prove to be short lived as the Italian government has announced that it is to postpone some tax cuts in a deficit reduction effort. It appears that the European Commission (EC) has managed to persuade the government of Matteo Renzi to take concrete steps to reduce the country’s structural budget deficit by more than initially planned in 2015. The initial plan by the Italian authorities was for a deficit reduction of just 0.1% of GDP for the year, the EC had been pushing for a larger reduction of 0.5%, both parties now seem to have reached a compromise at the 0.3% level.

Italy, along with France, has been pushing hard for some leeway on the EU’s fiscal deficit rules. The Italian economy, which has contracted by 9% in the past seven years, has just narrowly managed to avoid it’s third recession over this period thanks to a flat growth reading that technically kept it above the recessionary line. Italy’s argument is that external stimulus from the European Central Bank has only gone so far in sparking any pick up in domestic economic activity and so the country must be afforded the opportunity to create some fiscal stimulus of it’s own. The problem is that this would only add to the bulging debt burden and would be a discouragement to the full implementation of structural reforms.

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