Italian business and consumer sentiment plummets in July as political instability returns

Shoppers walk along a shopping street before Christmas amid the spread of the coronavirus disease (COVID-19) in Rome, Italy, November 30, 2020. REUTERS/Guglielmo Mangiapane

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ROME, July 27 (Reuters) – Italian business and consumer morale plummeted in July, a month that marked the return of political instability in Italy with the collapse of Prime Minister Mario Draghi’s national unity government , according to data released Wednesday.

National statistics institute ISTAT’s manufacturing confidence index fell to 106.7 in July from a downwardly revised 109.5 in June, below a median forecast of 108.0 in a Reuters survey with 10 analysts.

The June figure was previously 110.0.

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ISTAT’s composite business sentiment index, combining surveys of the manufacturing, retail, construction and service sectors, fell to 110.8 from 113.4 previously, declines in with the manufacturing and services sector outweighing improved sentiment from builders and retailers.

Consumer confidence this month fell to 94.8 from 98.3 in June, against a median forecast of 96.6 in the Reuters poll. It was the lowest reading since May 2020.

Draghi lost power last week after three key coalition partners withdrew their support for his 18-month-old administration. Snap elections have been called for September.

The political unrest came amid tough economic conditions, with Russia’s invasion of Ukraine driving up energy costs and increasing uncertainty for businesses. Read more

European Union energy ministers on Tuesday approved a proposal asking all EU countries to voluntarily reduce their gas consumption by 15% from August to March with compromise agreements to reduce cuts for certain countries, including Italy, which accepted a reduction of 7%.

But despite numerous headwinds, the eurozone’s third-largest economy appeared to hold up better than expected a few months ago as some economists predicted a recession triggered by soaring prices.

The Draghi government in April revised down its economic growth forecast for 2022 to 3.1% against a projection of 4.7% made last September.

ISTAT provided the following data from the July manufacturing confidence survey:

JULY JUNE MAY APRIL

Overall index 106.7 109.5r 109.0r 109.7r

Level of orders -0.3 6.3r 4.5r 5.4r

Inventory 0.9 1.7 0.4 -0.7

Production prospects 5.4 7.7r 6.9r 6.7

r=revised

— Reporting by Crispian Balmer

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