Italy's Industrial Output Logs First Fall In Three Months

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Italy's industrial production unexpectedly fell in December, suggesting that the economy's recovery from the recession may be slow.

The seasonally adjusted industrial production fell 0.7% month-on-month in December after an increase of 0.4% in November, data released by the ISTAT showed Wednesday. That was the first fall in three months. Economists had forecast a 0.1% rise. Capital goods production and energy output recorded declines in December.

According to UniCredit Research's Chief Italian economist Marco Valli, a calendar effect due to "bridge days" in the first part of the month weighed negatively on December's monthly reading. If the assumption proved to be correct, the firm expects industrial production to recover some ground in the beginning of this year given the upward trend in leading indicators.

On an annual basis, calendar adjusted industrial production decreased 5.6%, slower than November's revised decline of 7.8%. Output has been falling since April 2008. The fall in December was more than the expected 4.9% drop.

Meanwhile, unadjusted industrial production fell 2.3% year-on-year in December. The pace of decline eased from November's revised 5.1% fall. Economists had expected 3.9% drop. In December, unadjusted industrial output fell for a seventeenth consecutive month.

Colin Ellis, European economist at Daiwa Capital Markets Europe, said today's data confirm that the Italian industrial sector was hit incredibly hard by the global downturn. "Although the market focus is on the periphery, the core euro area countries are not out of the woods yet - indeed, if anything the chances of a double-dip seem to be growing, not receding," the economist warned.

In the fourth quarter of 2009, industrial output declined a seasonally adjusted 0.8% compared to the robust 4.4% rise in the previous three months. Year-on-year, industrial production dropped 8.7% on a calendar adjusted basis after plunging 17% in the previous three months.

For the whole of 2009, industrial production dropped 17.5%, recording the biggest drop since the series began. In 2008, industrial production fell 3.3% after a 2.1% increase in 2007. Unadjusted, industrial output dropped 17.4% in 2009.

Last week, Markit Economics' Purchasing Managers' Index survey found that manufacturing output rose for the fourth straight month in December and at its fastest pace since August 2007, driven by greater volumes of incoming business. New orders increased at the steepest pace since May 2007, with respondents citing an improvement in the prevailing economic climate and re-stocking by clients as contributory factors.

A more supporting external environment and a more favorable exchange rate could sustain activity in the coming months, BNP Paribas economist Clemente De Lucia said. However, domestic demand is likely to remain subdued over the coming months, the economist noted.

"Large excess of spare capacity will limit investment decisions over the coming quarters," De Lucia said. "Under these conditions, GDP is expected to expand over the coming quarters, albeit a moderate pace."

The ISTAT is set to release the preliminary figures for fourth quarter GDP on Friday. UniCredit expects a flat GDP reading for fourth quarter, with some slight upside risks. The economy expanded 0.6% in the third quarter on a sequential basis, after a 0.5% contraction in the second quarter. The Italian economy expanded for the first time since the first quarter of 2008.

(Market News Provided by RTTNews)