Rome, Jan. 21 (Bloomberg) -- Italian consumer confidence fell to its lowest in more than six years in January amid concern about job losses at Fiat SpA, the country's largest manufacturer. The state-funded Isae institute's index fell to 106.2, the lowest since November 1996, from 106.7 in December. The survey of 2,000 households was done in the first two weeks of the month and is one of first gauges of confidence in the dozen nations sharing the euro. Consumer spending, which accounts for about two-thirds of Europe's fourth-largest economy, is barely growing as Italy's biggest employers cut jobs. Fiat, which had its first full-year loss in a decade in 2001, and Pirelli SpA, Europe's biggest cable maker, are eliminating more than 10,000 jobs.
``It's going to be a rough year,'' said Silvana Consoli, manager of Bottega Verde, a natural beauty products store in downtown Rome. ``Christmas sales weren't great.'' Carmaker Fiat began trimming jobs in December to offset losses at its car unit. Strikes, which last year crippled Fiat's production, are still being staged. Italy's unemployment rate was 8.9 percent in October, according to the latest published figure. Confcommercio, Italy's largest retailers' lobby, estimates that sales before Christmas were 3 percent lower than a year ago. Spending probably won't increase soon, said Carlo Mochi, head of research at Confcommercio.
`Afraid of Future'
``Shoppers are afraid of the future because of the crisis at Fiat and a possible war against Iraq,'' said Maurizio Piglione, chief executive of Saiag SpA, Italy's biggest maker of aluminum cooking foil. About 39 percent of consumers surveyed by Isae said their own economic situation had worsened in January, compared with 37 percent the previous month. Europe's economy may not recover at all this year as war and terrorism weigh on confidence, Italian Deputy Finance Minister Vito Tanzi said last week. Europe's economy may shrink in the first quarter, according to the European Commission's latest forecast. The U.S. will have deployed about 130,000 naval, air and army personnel in the Persian Gulf by mid-February and is ready to use force in the event Iraq doesn't comply with United Nations resolutions to disarm. UN Weapons inspectors report to the Security Council Jan. 27.
German Economy
German consumer confidence fell to an eight-year low after the government announced increases in energy taxes and social security contributions from Jan. 1. Metro Group, Germany's No. 1 retailer, said two weeks ago fourth-quarter sales growth slowed. Germany, the No. 1 economy among the dozen countries sharing the euro, grew at its slowest pace in almost a decade last year. Italy's economy probably grew 0.4 percent last year, the smallest increase since 1993, analysts say. Prime Minister Silvio Berlusconi cut taxes for low earners this year to try to boost spending. Some retailers have said revenue probably will increase in 2003. Rinascente SpA, Italy's largest publicly traded retailer, said last week sales this year ``aren't bad,'' after they increased 6 percent last year from 2001. Motorcycle-maker Ducati Motor Holding SpA expects 2003 revenue to surpass last year's thanks to the introduction of new models. Even Fiat's car sales rose for the first time in 12 months in December as consumers took advantage of what was to be the final month of government incentives for car buyers.
Rising Prices
Inflation also hurt spending last year. Retailers took advantage of the conversion to euro coins and notes to push up prices for food and clothing, according to Italian consumer lobbies. ``The euro had a terrible effect on prices, especially on clothes,'' Pierluigia Fullieno, a 29-year-old student in Rome. ``I'm looking for bargains.'' While Italian inflation held at a 16-month high of 2.8 percent in December, economists predict it will slow this year. Inflation in the 12 euro nations slowed to 2.2 percent in December. That's still higher than the European Central Bank's 2 percent ceiling. The ECB lowered interest rates for the first time in a year in December to help boost the economy. The central bank has indicated that the 2.75 percent benchmark rate may come down further in coming months. Isae's consumer confidence index is based on questions Isae asks consumers monthly about their plans for saving and spending, their outlook for unemployment, and their general opinions about the economy. //www.quote.bloomberg.com