Rome, Nov. 14 (Bloomberg) -- Italy's economy barely grew in the third quarter as consumer spending stalled and companies like Fiat SpA cut production as sales dropped. Gross domestic product in Europe's fourth-biggest economy expanded 0.3 percent from the second quarter, when it rose 0.2 percent, the government said. ``There's no reason to be optimistic right now,'' said Innocenzo Cipolletta, chairman of clothing maker Marzotto SpA, the owner of the Hugo Boss and Valentino brands. Marzotto's third- quarter profit dropped 47 percent from the year-earlier period.
The slumping global economy is hurting Italian companies such as Fiat and Pirelli SpA, which have announced more than 10,000 job cuts to counter falling profit. Prime Minister Silvio Berlusconi is cutting taxes by 5.5 billion euros ($5.5 billion) for low earners next year to try to boost spending and growth. Italy represents about a fifth of the economy of the dozen nations sharing the euro. Industrial production fell for the first time in three months in September. Pirelli said Monday flagging demand for telecommunications equipment meant its profit this year would fall short of its previous forecasts. Fiat expects an operating loss of almost 1.2 billion euros at its auto business in 2002 because its car sales have fallen every month this year.
Job Cuts
Government debt remained higher. The yield on the 4 1/2 percent Italian note maturing in 2004 fell 2 basis points to 2.90 percent. A basis point is 0.01 percentage point. The job cuts at two of Italy's biggest companies may further depress consumer and business optimism. Consumer confidence fell to a five-year low in October after the Fiat announcement fueled concern over job security. Business confidence also dropped in October. Today's preliminary report didn't provide a breakdown of the GDP components and wasn't adjusted for working days. There were three more working days than in the second quarter.
The European Commission cut its growth forecast for Europe yesterday. The region's economy will expand by 0.8 percent this year, its lowest pace in nine years, as demand slows, stock markets fall, and war with Iraq looms, the commission said. ``Anyone who forecasts a recovery as early as next year is too optimistic,'' said Augusto Rizzi, chairman of RDB SpA, which makes prefabricated structures for construction. ``Fears of war are weighing on everyone.''
War Concerns
The possibility of war with Iraq may crimp spending in the fourth quarter in the world's largest economy. U.S. consumer confidence declined to a 10-month low in September because of concern about war and falling stock markets. The Dow Jones Stoxx 5O Index has shed about 36 percent of its value since the beginning of the year, while the Dow Jones Industrial Average has dropped about 16 percent. The European Central Bank declined to follow the U.S. Federal Reserve's reduction in interest rates last week. The ECB left interest rates at 3.25 percent for a 12th month. European Central Bank Chief Economist Otmar Issing said Tuesday inflation will probably slow, suggesting he may support a reduction in interest rates as soon as next month. Istat is scheduled to publish a final report on third-quarter GDP on Dec. 10. /www.quote.bloomberg.com