Italian Consumer Confidence Down Sharply in April: A Portent for the Future or a One Time Blip?

Italian consumers have turned sharply negative according to the April ISAE survey of consumer confidence*.The overall index declined 4.3% from March. Consumers' confidence in the general economic situation declined 4.0% and confidence in their personal situation declined 4.3%. Underlying the decline in confidence in their personal situation was a sharp decline in confidence regarding the future, which declined 6.3%. Confidence in their current personal situation was down only 1.2%. The first chart shows the ISAE consumer confidence indicator, the indicator for the general economic situation and the indicator for the household's personal situation.

A part of the drop in confidence in April may be explained by the sluggish performance of the Italian economy in recent years. Although the economy grew slightly above expectations in 2006, it was still only 1.9%, compared with 2.1% in France and 2.89% in Germany. Industrial production has declined in January and February of this year. In addition, the government raised taxes on incomes above 40,000 euros ($54,000 at euro=1.35 dollars) earlier this year.

In a somewhat longer perspective the picture is not so bleak. In spite of the April decline, overall confidence was 1.6% above April, 2006 and the appraisal of the general economic condition was 2.8% above April, 2006. Consumers were 3.9% more confident of their personal current condition, but were 2.3% less confident about the future than in April, 2006. The upward trend in Italian Consumer confidence that began in mid 2004 has not been without its sharp ups and downs. The trend adjusted series has weathered monthly declines almost as large as the of April 2007, as can be seen in the second chart that shows the trend adjusted confidence indicator and its month to month changes.*The survey, conducted by the Institute for Studies and Economic Analysis in Rome, interviews some 2000 households. The April survey was carried out between April 1 and April 14.