News Analysis: Italy sees fragile economic recovery in 3rd quarter

by Eric J. Lyman

ROME, Dec. 11 (Xinhua) -- The struggling Italian economy witnessed flat growth in the third quarter, as National Statistics Institute, or ISTAT, on Thursday revised up an earlier estimate of a 0.1 percent contraction from the prior quarter.

Italian Prime Minister Enrico Letta hailed the news from ISTAT as "encouraging" and Economy Minister Fabrizio Saccomanni said, "This shows we're at a turning point in the business cycle."

Saccomanni, joined by a number of economists, also predicts slightly positive growth in the final quarter of 2013, as well as for 2014 as a whole.

"One way or another, the recovery is returning and is affecting several production sectors," said Employment Minister Enrico Giovanni.

It was the first time that Italy had pulled out of an economic contraction over the past two years. If Saccomanni is correct in his economic estimates about next year's growth between 0.4 percent and 1.1 percent, it will be the first time in four years the economy actually grows positively for an entire year.

Despite the adjustment to the growth figure, the Italian economy is now 7.4 percent smaller than it was five years ago, while the population has grown 1.4 percent over the same period, which means an average Italian is about 9 percent poorer than in 2008.

Given that commodity prices have risen by more than 10 percent during the period, there is an even bigger erosion in the nation's purchasing power.

And worse is that fixed investments are down by nearly 25 percent over the past five years, while a host of key indicators, including consumer confidence, debt levels, interest rates on Italian bonds and major indexes of the Milan Stock Exchange, are all worse off than in 2008. Repairing the economic damage of recent years will take years, observers said.

"We can't really say we're out of the crisis yet," said Giorgio Squinzi, chairman of Confindustria, Italy's leading industry lobby group.

Yet the worst news of all is the unemployment rate remains stubbornly above 12 percent, its highest level in a decade.

That is likely to slow the perception of an economic recovery though ISTAT has reported a recovery is under way. And if the public fails to feel things are improving, it could undermine people's support for the Letta government and its reform policies.

"That economic growth restarts is important but perhaps more important is that middle class Italians feel the change in their pocketbooks," said Antonio Bolzano, an economist with ABS Securities in Milan. "Unfortunately, that part of the recovery may not be coming soon."