Italy's ISTAT says signs of economic turnaround may be showing, but economists aren't so sure

With consumer and business confidence on the rise in Italy and some small upward adjustments in predictions for full-year economic growth, Italy's National Statistics Institute said this week the country's troubled economy might be showing the "first positive signals of a turnaround."

But economists are not as confident.

ISTAT, the statistics institute, based its statement mostly on a rise in the consumer confidence index, which rose to 110.9 in March compared to 107.7 a month earlier. It was the first time the index, which measures consumer sentiment, finished a month above 110 since 2003, and it was nearly a third higher than its all time low of 84.7 in June 2012.

Business sentiment also rose in March, though less dramatically, and at least one major entity, the Ministry of Economy, upped its gross domestic growth forecast for the year as a whole to 0.6 percent from 0.5 percent previously. That brings it in line with other prognostications, which range from 0.6 percent to 1.0 percent from the European Central Bank.

But while economists say the latest trends are positive, it will not be appropriate to say an economic turnaround is in the works until the unemployment rate starts to drop, domestic consumption increases, and the import-export sector becomes healthier.

As it stands, unemployment levels reversed a two-month trend to rise slightly in February, the latest figures, while domestic spending was slightly lower in March than in the year-ago period. Export levels have improved thank to a weak euro and low fuel prices, but the weak currency has hurt imports.

"What we have seen so far is a psychological effect," Adriano Genovese, an economist with Hildebrandt and Ferrar, told Xinhua. "People are more confident, which is positive. But until they spend more, until companies start to hire more people, it will be hard for a recovery to gain traction."

Alessandro Polli, an expert on economic statistics with La Sapienza University in Rome, agreed.

"The key is internal demand," Polli said in an interview. "The best we can say now is that consumer confidence may be setting the stage for more consumer demand."

If the economy does indeed grow between 0.6 percent and 1.0 percent as forecast, it will be a positive sign for an economy that has experienced just one quarter of positive growth since the start of 2012. But Angelo Bruscino, from the Italian Confederation of Small and Medium Private Industry, or CONFAPI, said that even more important than showing positive growth is showing stronger growth than the European Union as a whole. That is something Italy has failed it do in 12 of the last 13 years, and, by all estimates, will fail to do again this year.

Pollsters say the uptick in consumer and business confidence comes from the government's aggressive reform program. For the reforms to translate to economic growth, Bruscino said the Matteo Renzi government should lower sales taxes and income taxes in order to add to the money supply. That is a hard thing to do for a government focused on reducing debt, but Bruscino said it would pay dividends.

"Once the economy starts growing, the lower tax rates will draw from a more active economy and revenue will grow," he said. Endit