July 22 (Bloomberg) -- Confidence among Italian consumers, whose spending accounts for about two thirds of the country's economy, rose in July from a 6 1/2 year-low as falling inflation and unemployment boosted optimism about a recovery. An index by the Rome-based Isae institute based on responses from 2,000 households gained to 106.7 from a revised 105 in June, beating economists' expectations. Signs of falling joblessness and inflation lifted confidence, the report said. ``Business is starting to perk up, although we're not out of the woods yet,'' said Mario Moretti Polegato, chief executive officer of Geox, which sells its odor-free shoes in 51 countries.
Unemployment in Italy fell to its lowest in more than a decade in April and the inflation rate in June dropped for the first time in four months. Italy's $1.5 trillion economy will rebound in the second half, the government predicts. Companies such as Gucci Group NV and Bulgari SpA say demand is improving. Consumer spending in Italy's biggest trading partners may be recovering, economists forecast. French consumer spending, which had suffered its biggest drop in almost four years in May, rose 0.9 percent in June, economists expect a report on Wednesday to show. U.K. retail sales are forecast to gain 0.4 percent in June after dropping in May. That report will be released on Thursday.
Recovery Seen
``We get the impression though that there are increasing prospects for economic recovery,'' said Jean-Claude Trichet, the governor of Bank of France who will head the European Central Bank beginning Nov. 1, in an interview with Polish daily Gazeta Wyborcza. Italian bonds fell on signs that growth may be accelerating. The yield on the Italian 4 3/4 percent bond due 2013 rose 2 basis points to 4.2 percent. Falling consumer confidence, triggered by rising unemployment in some countries, may have halted Europe's economic growth in the first half. The region's economy was also held back as the euro's 12 percent increase against the dollar dented exports to the U.S. and as industrial production declined. There are signals of a recovery in the U.S., which could help drive future demand for European goods. Confidence in the U.S., which buys about a fifth of Europe's exports, rose for the third time in four months in July, a survey published on Friday by the University of Michigan showed.
Inflation Falls
Concern about rising prices in Italy is subsiding, encouraging more consumers to consider buying goods. Italy's inflation rate fell to 2.6 percent in June, and the number of Italians who said that prices will rise more slowly in the next 12 months gained in July, today's survey showed. Italy's inflation rate started the year at 2.8 percent, matching the highest in more than a year. Inflation, which remains about a third more than the average for the EU, contributed to consumer confidence dropping in four of the first six months this year. The drop in consumer prices allowed the European Central Bank last month to cut its benchmark rate for the third time since December, taking borrowing costs to the lowest for any country in the region in more than half a century. ECB council member Ernst Welteke said yesterday conditions are ripe for growth. Italians who have invested in stock markets have also seen their savings grow in value. Italy's benchmark Mib30 index has gained 23 percent since its five-year low on March 12. Almost half of those surveyed in the confidence report said their savings were generating good returns.
Unemployment
Optimism was also helped by unemployment falling in April to 8.8 percent after rising for the first time in five years in January, the previous month measured by the national statistics institute. The percentage of Italians surveyed who said unemployment would rise further fell to 34 percent from 37 percent, Isae said. Some of the country's biggest retailers also say the worst may be over. Italian fashion houses are starting to post improved orders after the combination of euro strength, the war in Iraq and the outbreak of severe acute respiratory syndrome dented sales in the first half. ``I am a bit more optimistic about the second half,'' said Francesco Trapani, chief executive officer of Bulgari SpA, the world's No. 3 luxury jewelry maker, in an interview with Bloomberg July 11. ``I don't expect that the situation will boom but if we don't see any terrorist attacks or SARS coming up again, I think things should go better.''
Gucci Chief Executive Officer Domenico De Sole said in an interview in Amsterdam last week he expects ``strong profitability'' in fiscal 2003. The Isae confidence survey was conducted between July 1 and July 14. The index fell as low as 93.7 in April 1993 and touched a record high of 130.8 in November 1988. //www.bloomberg.com