Identifier
Created
Classification
Origin
02ROME2958
2002-06-18 11:32:00
UNCLASSIFIED
Embassy Rome
Cable title:  

ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE

Tags:  ECON EFIN ELAB IT KPRP 
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UNCLAS SECTION 01 OF 10 ROME 002958 

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 01 OF 10 181526Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

REF: (A) ROME 02794,

(B) 02 TREAS 101720Z, (C) 02 ROME 462

UNCLAS SECTION 01 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 01 OF 10 181526Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP

SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

REF: (A) ROME 02794,

(B) 02 TREAS 101720Z, (C) 02 ROME 462


1. SUMMARY. THE ITALIAN ECONOMY IS LIKELY TO REMAIN
SOMEWHAT WEAK OVER THE FORECAST PERIOD. GDP GROWTH IS
EXPECTED TO BE AN ANEMIC 1.3 PERCENT IN 2002. THE
GLOBAL ECONOMIC UNCERTAINTY CONTINUES TO DAMPEN
ITALIAN EXPORTS, AND HEIGHTEN CONSUMER UNCERTAINTY.
THE CONVERSION TO THE EURO HAS PUSHED UP INFLATION TO
2.4 PERCENT. THE GOVERNMENT HAS YET TO RESOLVE THE
PROBLEM OF A SPIRALING PUBLIC DEFICIT. OPPOSITION FROM
TRADE UNIONS, WHICH HAVE PLAYED A KEY ROLE IN SOCIAL
AND ECONOMIC POLICY-MAKING, HAS STALLED PROGRESS ON
KEY LABOR AND ECONOMIC REFORMS. THE GOVERNMENT NEEDS
TO IMPLEMENT THE RIGHT MIX OF FISCAL POLICIES AND
BEGIN TO ENACT SIGNIFICANT REFORMS FOR ECONOMIC
RECOVERY TO BE STRONG. END SUMMARY.

GDP GROWTH: 2002
--------------
UNCLASSIFIED

PAGE 03 ROME 02958 01 OF 10 181526Z


2. GDP GROWTH IN ITALY CONTINUES TO DECELERATE. THE
GLOBAL ECONOMIC SLOWDOWN IS HURTING ITALIAN EXPORTS TO
ITS MAJOR MARKETS: THE U.S. AND GERMANY. CONCERN
ABOUT GLOBAL ECONOMIC CONDITIONS AND SIGNS OF
INCREASED INFLATION HAVE DEPRESSED CONSUMER DEMAND.
EVEN THE ANEMIC GDP GROWTH IN 2001 OF 1.8 PERCENT MAY
SURPASS GROWTH IN 2002. THE MOST PESSIMISTIC FORECAST
IS A GROWTH RATE OF 1.3 PERCENT. THE GOVERNMENT
MAINTAINS THAT GROWTH WILL BE AROUND 2.3 PERCENT, BUT
HAS CONCEDED THAT IT COULD BE AS LOW AS 1.3 PERCENT.


3. THE LATEST DATA ON INDUSTRIAL PRODUCTION ARE
DISAPPOINTING. ON A YEARTO-YEAR BASIS, INDUSTRIAL
PRODUCTION CONTINUES TO REGISTER A DECLINE. IN THE
FIRST FOUR MONTHS OF 2002, INDUSTRIAL PRODUCTION WAS
DOWN 3.5 PERCENT OVER THE CORRESPONDING PERIOD OF
PREVIOUS YEAR. APRIL HOLIDAYS AND THE GENERAL STRIKES
HAD A NEGATIVE EFFECT ON INDUSTRIAL PRODUCTION THAT
POSTED AN ANEMIC 0.5 PERCENT INCREASE IN APRIL. A
MODEST RECOVERY IS EXPECTED IN MAY. (NOTE: 17 MILLION
HOURS HAVE BEEN LOST TO STRIKES THROUGH APRIL 2002, UP
1,317.4 PERCENT OVER THE CORRESPONDING PERIOD OF
2001.) EVEN WITH BETTER RESULTS IN MAY, INDUSTRIAL
PRODUCTION THROUGH THE FIRST FIVE MONTHS OF 2002 STILL
WOULD BE ONE TO TWO PERCENT BELOW THE CORRESPONDING
PERIOD IN 2001.


4. ON THE DEMAND SIDE, CONSUMER CONFIDENCE IS FALLING,
AFTER RISING IN THE FIRST THREE MONTHS OF 2002, TO
LEVELS SIMILAR TO THOSE IMMEDIATELY FOLLOWING
UNCLASSIFIED

PAGE 04 ROME 02958 01 OF 10 181526Z
SEPTEMBER 11. A SIGN OF THE TIMES: CAR SALES DROPPED
BY 11 PERCENT FROM APRIL TO MAY AND BY 12.7 PERCENT
FROM JANUARY TO MAY OVER 2001 SALES. CONSUMERS ARE
INCREASINGLY CONCERNED ABOUT THE ECONOMIC SITUATION IN
GENERAL AND ABOUT INCREASED INFLATION IN PARTICULAR.


5. THESE TRENDS, IF THEY CONTINUE, WOULD DECELERATE
GDP GROWTH FROM THE 1.8 PERCENT REGISTERED IN 2001 TO
1.3 PERCENT IN 2002. THIS IS FAIRLY IN LINE WITH THE
AVERAGE GROWTH RATE IN THE EURO AREA, BUT HIGHER THAN
GERMANY. ACCORDING TO THE CONSENSUS FORECAST OF
ITALIAN RESEARCH INSTITUTIONS, EVEN IF GDP GROWTH
ACCELERATED IN THE LAST QUARTER OF 2002, GDP GROWTH
WILL NOT MAKE UP GROUND LOST IN 2001. THE CONSENSUS
FORECAST, WHICH WE SHARE, IS THAT GDP GROWTH IN 2002
WILL BE 1.3 PERCENT.


6. TWO OTHER COMPONENTS OF DOMESTIC DEMAND, PRIVATE
CONSUMPTION AND INVESTMENT, WILL SUPPORT WHATEVER GDP
GROWTH OCCURS. PRIVATE CONSUMPTION IS EXPECTED TO
ACCELERATE SLIGHTLY FROM 1.1 PERCENT IN 2001 TO 1.3
PERCENT IN 2002, WHILE INVESTMENT IS EXPECTED TO

UNCLASSIFIED

UNCLASSIFIED PTQ0868

PAGE 01 ROME 02958 02 OF 10 181526Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF322 181526Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4273
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2707
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 02 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 02 OF 10 181526Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

ACCELERATE FROM 2.4 PERCENT IN 2001 TO 2.5 PERCENT
THIS YEAR. HOUSEHOLD CONSUMPTION IS EXPECTED TO
INCREASE SLIGHTLY AS A RESULT OF THE MINOR INCREASE IN
WAGES. THESE INCREASED WAGES ARE, HOWEVER, PARTLY
OFFSET BY LOSS IN INCOME FROM STOCKS. (NOTE: STOCK
INDICES DROPPED 25.1 PERCENT IN 2001). CONSUMPTION
WILL ALSO BE TEMPERED BY INCREASED INFLATION, WHICH IS
A RESULT OF HIGHER OIL PRICES, AND THE IMPACT OF THE
ECONOMIC CRISIS IN ARGENTINA. (NOTE: THE LEADING
CONSUMER ASSOCIATIONS ESTIMATE THAT 450,000 PRIVATE
ITALIAN INVESTORS HOLD ARGENTINE ASSETS.)


7. PUBLIC CONSUMPTION IS EXPECTED TO DECLINE IN 2002.
THE CENTRAL GOVERNMENT HAS IMPOSED EU-MANDATED BUDGET
TARGETS ON REGIONAL AND LOCAL GOVERNMENTS. THEIR
PUBLIC CONSUMPTION, AS A SHARE OF GDP, IS EXPECTED TO
DECLINE FROM 17.6 PERCENT IN 2001 TO 17.4 PERCENT IN

2002.

OUR FORECAST
UNCLASSIFIED

PAGE 03 ROME 02958 02 OF 10 181526Z

GDP COMPONENT AS PCT OF GDP2001 2002

PRIVATE CONSUMPTION 59.8 59.8
PUBLIC CONSUMPTION17.6 17.4
INVESTMENT20.8 21.0
0.8Q 21.0
INVENTORIES -0.2 -0.1
EXPORTS30.3 30.3
IMPORTS28.3 28.5
GDP 100.0 100.0


8. AS A RESULT OF THESE TRENDS, OVERALL CONSUMPTION,
BOTH PUBLIC AND PRIVATE, WILL DECELERATE FROM 2001
LEVELS. (NOTE: OVERALL CONSUMPTION IS THE RESULT OF
PRIVATE CONSUMPTION ACCELERATING FROM 1.1 PERCENT TO
1.3 PERCENT AND PUBLIC CONSUMPTION DECELERATING FROM
2.1 TO 0.1 PERCENT. END NOTE.)


9. PRIVATE INVESTMENT IS EXPECTED TO BE UP, PRIMARILY
AS A RESULT OF TAX INCENTIVES PROVIDED IN THE TREMONTI
LAW. THIS LAW GIVES TAX BENEFITS FOR REINVESTED
PROFITS. INVESTMENT GREW 2.4 PERCENT IN 2001 AND IS
EXPECTED TO INCREASE BY 2.5 PERCENT BOTH IN 2002 AND

2003. THE EFFECTS OF THE TREMONTI LAW ARE EXPECTED TO
BE GREATEST IN THE LAST HALF OF 2002 AND FIRST HALF OF

2003. THE BENEFICIAL IMPACT OF THE TAX INCENTIVES ON
PRIVATE INVESTMENT WILL BE PARTLY OFFSET BY THE
EXPECTED DECELERATION IN PUBLIC INVESTMENTS.

GDP GROWTH: 2003
UNCLASSIFIED

PAGE 04 ROME 02958 02 OF 10 181526Z
--------------

003
--------------


10. GDP IS EXPECTED TO ACCELERATE GRADUALLY TO 2.4
PERCENT IN 2003, SUPPORTED BY DOMESTIC DEMAND AND A
RECOVERY OF EXPORTS. REDUCED INFLATIONARY PRESSURES
AND IMPROVEMENT IN THE STOCK MARKET ARE EXPECTED TO
BOOST HOUSEHOLD INCOME AND PRIVATE CONSUMPTION.
CONSUMPTION MAY BE SLIGHTLY TEMPERED, HOWEVER, BY THE
EXPECTED INCREASE IN INTEREST RATES. AS A RESULT OF
THESE TRENDS, PRIVATE CONSUMPTION IS EXPECTED TO
ACCELERATE FROM 1.3 PERCENT IN 2002 TO 2.5 PERCENT IN

2003.


11. THE ELIMINATION OF THE TAX DEDUCTION FOR HOME
REMODELING IN 2003 IS EXPECTED TO REVERBERATE
NEGATIVELY ON INVESTMENT IN CONSTRUCTION. PUBLIC
INVESTMENT ALSO IS EXPECTED TO DECELERATE IN 2003.

FOREIGN TRADE

UNCLASSIFIED

UNCLASSIFIED PTQ0869

PAGE 01 ROME 02958 03 OF 10 181527Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF331 181527Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4274
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2708
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 03 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 03 OF 10 181527Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

--------------


12. OVER THE FORECAST PERIOD, EXPORTS ARE EXPECTED TO
RECOVER ONLY WHEN GLOBAL ECONOMIC CONDITIONS IMPROVE,
WHICH IS EXPECTED IN THE SECOND HALF OF 2002. THE
APPRECIATION OF THE EURO VIS--VIS THE DOLLAR WILL,
HOWEVER, RESTRAIN EXPORT GROWTH. IMPORTS ARE EXPECTED
TO GROW FASTER THAN EXPORTS AS A RESULT OF PURCHASES
OF INVESTMENT GOODS ENCOURAGED UNDER THE TREMONTI
LAW -- AND THE RECOVERY OF DOMESTIC DEMAND AND THE
EUROS REVALUATION.


13. THE CURRENT ACCOUNT REGISTERED A .2 BILLION EURO
DEFICIT, OR 0.01 PERCENT OF GDP IN 2001, FOLLOWING A
6.3 BILLION EURO DEFICIT, OR 0.5 PERCENT OF GDP IN

2000.


14. LATEST FOREIGN TRADE DATA FOR 2002 SHOW A MODEST
DECLINE THROUGH MARCH 2002. EXPORTS DROPPED 7.1
PERCENT, WHILE IMPORTS DECREASED BY 7.8 PERCENT.
UNCLASSIFIED

PAGE 03 ROME 02958 03 OF 10 181527Z
EXPORTS TO EU COUNTRIES DECREASED BY 8.6 PERCENT,
WHILE IMPORTS FROM THE EU DECREASED BY 6.7 PERCENT.
EXPORTS TO GERMANY FELL THE MOST, DOWN 14.2 PERCENT
THROUGH MARCH 2002 OVER THE CORRESPONDING PERIOD IN

2001. (NOTE: THIS IS BAD NEWS FOR ITALIAN EXPORTERS,
SINCE GERMANY IS THEIR NUMBER ONE EXPORT MARKET.)
EXPORTS TO NON-EU COUNTRIES DID NOT FALL AS MUCH.
ACCORDING TO THE LATEST ISTAT (ITALIAN CENTRAL BUREAU
OF STATISTICS) DATA, ITALIAN EXPORTS TO ALL NON-EU
AREAS (USA, TURKEY AND THE FOUR SOUTH AMERICAN
N
COUNTRIES OF MERCOSUR INCLUDED) DROPPED BY FIVE
PERCENT IN THE FIRST FOUR MONTHS OF 2002 OVER THE
CORRESPONDING PERIOD IN 2001. THIS IS THE RESULT OF A
DECLINE IN EXPORTS TO MERCOSUR (DOWN 40 PERCENT
THROUGH APRIL),ASIA (DOWN 12.3 PERCENT) AND THE
UNITED STATES (DOWN 8.3 PERCENT),COMBINED WITH
INCREASES REGISTERED IN EXPORTS TO RUSSIA (28.1
PERCENT THROUGH APRIL),OTHER EUROPEAN COUNTRIES (13.1
PERCENT) AND OPEC COUNTRIES (UP 10.8 PERCENT).


15. THE LATEST BALANCE OF PAYMENTS DATA SHOW THAT THE
CURRENT ACCOUNT REGISTERED A 2.15 BILLION EURO DEFICIT
THROUGH MARCH 2002 COMPARED TO A 2.01 BILLION EURO
DEFICIT IN THE CORRESPONDING PERIOD IN 2001. THIS IS
THE RESULT OF A 245 MILLION EURO IMPROVEMENT IN THE
TRADE ACCOUNT, COMBINED WITH A 384 MILLION EURO
DECLINE IN INVESTMENT, INCOMES AND TRANSFER BALANCES
OF THE CURRENT ACCOUNT.


16. HOWEVER, ITALYS CURRENT ACCOUNT WILL LIKELY
UNCLASSIFIED

PAGE 04 ROME 02958 03 OF 10 181527Z
EXPERIENCE A SURPLUS OF 3.6 BILLION EUROS IN 2002,
EQUAL TO 0.5 PERCENT OF GDP, IF EXPORTS PICK UP AS A
RESULT OF A RECOVERY IN THE WORLD ECONOMY. A FURTHER
IMPROVEMENT IS ANTICIPATED IN 2003 WITH A 10.2 BILLION
CURRENT EURO ACCOUNT SURPLUS, EQUAL TO 0.8 PERCENT OF
GDP.

PUBLIC ACCOUNTS
--------------


17. THE GOVERNMENT DEFICIT WAS 1.4 PERCENT OF GDP IN
2001, 30 BASIS POINTS ABOVE THE GOI TARGET. THE HIGHER
THAN EXPECTED PUBLIC DEFICIT WAS A RESULT OF LOWER
THAN EXPECTED GDP GROWTH AND HIGHER THAN EXPECTED
SPENDING, PARTICULARLY IN THE HEALTH SECTOR, SPENDING
RELATED TO ITALIAN PARTICIPATION IN OPERATION ENDURING
FREEDOM, AND ECONOMIC ASSISTANCE TO AFGHANISTAN AND
PAKISTAN. DEFICIT-REDUCTION MEASURES, ESPECIALLY
THOSE OF THE 100-DAY ECONOMIC PLAN, DID NOT HAVE ANY
IMMEDIATE EFFECTS. NEGATIVE MARKET PROSPECTS ALSO
POSTPONED GOI PLANS TO PRIVATIZE SOME STATE-OWNED
COMPANIES AND TO SELL PUBLICLY OWNED REAL ESTATE.

UNCLASSIFIED

UNCLASSIFIED PTQ0871

PAGE 01 ROME 02958 04 OF 10 181527Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF340 181527Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4275
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2709
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 04 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 04 OF 10 181527Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS


18. THE PUBLIC DEFICIT INCREASED TO 41.4 BILLION EUROS
THROUGH MAY 2002, UP 6.9 PERCENT OR 2.7 BILLION EUROS
OVER THE CORRESPONDING PERIOD IN 2001. THE GOI
MAINTAINS THAT IT WILL BRING DOWN THE DEFICIT TO .5
PERCENT OF GDP IN 2002. FORECASTERS BELIEVE THIS
PREDICTION IS TOO OPTIMISTIC. THE MACRO ASSUMPTIONS
OF THE GOI BUDGET STRATEGY, THOUGH REVISED DOWNWARD,
ARE STILL TOO OPTIMISTIC AND THE PUBLIC DEFICIT IS
GROWING FASTER THEN EXPECTED. REASONS INCLUDE LOWER
THAN EXPECTED REVENUES FROM SALES OF GOVERNMENT-OWNED
REAL ESTATE, AND THE LIMITED NUMBER OF COMPANIES
OPERATING IN THE UNDERGROUND THAT HAVE BECOME LEGAL,
TAX PAYING ENTITIES. FEW UNDERGROUND COMPANIES HAVE
TAKEN ADVANTAGE OF A ONE-TIME PARTIAL TAX FORGIVENESS.
THE GOI HAS RECEIVED ONLY FOUR MILLION EUROS IN TAXES
FROM COMPANIES THAT CHANGED THEIR STATUS, FAR LESS
THAN THE ONE BILLION EUROS EXPECTED.


19. A ONE-TIME TAX AMNESTY FOR THE REPATRIATION OF
UNCLASSIFIED

PAGE 03 ROME 02958 04 OF 10 181527Z
CAPITAL SEEMS TO HAVE BEEN SUCCESSFUL. DURING THE
NINE-MONTH PROGRAM, REPATRIATED CAPITAL WAS TAXED AT
2.5 PERCENT. THROUGH APRIL, AN ESTIMATED 32.5 BILLION
EUROS WERE REPATRIATED, GENERATING TAX REVENUES OF 810
MILLION EUROS.


20. TO OFFSET IN PART THE HIGHER THAN EXPECTED PUBLIC
DEFICIT, THE GOI PRESENTED TO PARLIAMENT IN FEBRUARY A
DEFICIT CONTROL PACKAGE AIMED AT RECOVERING 675
MILLION EUROS THIS YEAR AND 2.5 BILLION EUROS NEXT
YEAR, RECENTLY CONVERTED INTO LAW. MEASURES INCLUDE:

A. A FIVE-PERCENT CUT IN GOI PAYMENTS TO
PHARMACEUTICAL COMPANIES. FINANCE MINISTER TREMONTI
EXPECTS THIS MEASURE TO PRODUCE 500 MILLION EUROS IN
SAVINGS. PHARMACEUTICAL COMPANIES, INCLUDING U.S.-
OWNED FIRMS, HAVE OBJECTED STRONGLY TO THIS PRICE CUT;

B. THE DEADLINE FOR MANY PERSONAL AND CORPORATE TAX
PAYMENTS WAS MOVED UP FROM JULY 31 TO JUNE 20;

C. AREFORM OF CASSA DEPOSITI AND PRESTITI, TWO
SAVINGS AND LOAN FUNDS, THROUGH THE CREATION OF TWO
COMPANIES:
D1. PATRIMONIO DELLO STATO S.P.A., WHICH OWNS STATE-
OWNED REAL ESTATE. THE SALE OF SUCH REAL ESTATE IS
EXPECTED TO EVENTUALLY GENERATE INCOME EQUAL TO FIVE
PERCENT OF GDP;
D2. INFRASTRUTTURE S.P.A., WHICH IS INTENDED TO
FINANCE INFRASTRUCTURE AND PUBLIC WORK PROJECTS
THROUGH THE ISSUANCE OF BONDS;

E. THE ABOLITION OF TAX INCENTIVES FOR BANK MERGERS.


21. FINANCE MINISTRY OFFICIALS MAINTAIN THAT A PUBLIC
UNCLASSIFIED

PAGE 04 ROME 02958 04 OF 10 181527Z
DEFICIT EQUAL TO .5 PERCENT OF GDP WILL BE ACHIEVABLE
IF GDP GROWTH IS 2.3 PERCENT. IF GDP GROWTH IS 1.5
PERCENT, THE PUBLIC DEFICIT IS LIKELY TO BE .9 PERCENT
OF GDP. IN CONTRAST TO GOVERNMENT EXPECTATIONS, WE
ESTIMATE THAT THE PUBLIC DEFICIT WILL BE 1.5 PERCENT
IN 2002 AND DECLINE TO ONE PERCENT IN 2003. THIS IS
ONE PERCENTAGE POINT ABOVE STABILITY PACT TARGETS FOR
2002 AND 2003. ONLY IF A SUBSTANTIAL DEFICIT
REDUCTION PACKAGE IS IMPLEMENTED WILL THE GOI BE NEAR
A ZERO PERCENT PUBLIC DEFICIT, AS REQUIRED BY THE EU
STABILITY PACT.


22. AT THE CENTRAL BANKS ANNUAL MEETING, BANK OF
ITALY GOVERNOR ANTONIO FAZIO CALLED FOR A
SUPPLEMENTARY BUDGET PACKAGE TO BRING PUBLIC FINANCES
IN LINE WITH THE STABILITY PACT. FINANCE MINISTER
TREMONTI SAID THERE WOULD BE NO CORRECTIVE BUDGET
PACKAGE EVEN IF THE PUBLIC DEFICIT CONTINUED TO CLIMB.

STRUCTURAL REFORMS
--------------

UNCLASSIFIED

UNCLASSIFIED PTQ0877

PAGE 01 ROME 02958 05 OF 10 181527Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF34E 181527Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4276
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2710
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 05 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 05 OF 10 181527Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS


23. CENTRAL BANK GOVERNOR FAZIO ALSO URGED THE GOI TO
SPEED UP STRUCTURAL LABOR, PENSION AND TAX REFORMS.
OPPOSITION FROM TRADE UNIONS, WHICH HAVE PLAYED A KEY
ROLE IN SOCIAL AND ECONOMIC POLICY-MAKING, HAS STALLED
PROGRESS ON KEY LABOR AND ECONOMIC REFORMS. ALTHOUGH HE
ENJOYS A SECURE MAJORITY IN PARLIAMENT, PM BERLUSCONI
SEEKS TO BUILD CONSENSUS RATHER THAN IMPOSE MAJOR
CHANGES. SINCE THIS PROCESS WILL TAKE TIME, THE
PROSPECT FOR SIGNIFICANT REFORMS IS NOT ROSY. SEE
REFTEL A FOR BACKGROUND ON THESE STRUCTURAL REFORMS AND
THE PROSPECT FOR CHANGE. ONCE NEGOTIATIONS RESUME, WE
EXPECT SOME LABOR REFORM MEASURES WILL BE ENACTED THIS
YEAR, BUT THEY WILL HAVE ONLY A MINOR EFFECT ON THE
ECONOMIC CLIMATE, AT LEAST IN THE SHORT AND MEDIUM TERM.


24. PENSION REFORM IS ANOTHER ESSENTIAL STEP FOR LONG
TERM ECONOMIC HEALTH. PROPOSED REFORM MEASURES WILL
LOOK AT INCENTIVES FOR WORKERS TO WORK PAST RETIREMENT
AGE, LOWER CONTRIBUTIONS FOR THE NEWLY EMPLOYED AND
THE TRANSFER OF COMPANIES SEVERANCE FUNDS TO PRIVATE
UNCLASSIFIED

PAGE 03 ROME 02958 05 OF 10 181527Z
PENSION FUNDS.

INFLATIONARY IMPACT OF THE EURO
--------------


25. THE ROUNDING UP OF PRICES FOLLOWING THE EURO
CHANGEOVER AND HIGHER PRICES FOR AGRICULTURAL
PRODUCTS, WHICH RESULTED FROM AN UNUSUALLY COLD
WINTER, PUSHED UP INFLATION IN THE FIRST PART OF THIS
YEAR. EXCLUDING THE PRELIMINARY DATA FOR MAY, RETAIL
INFLATION WAS 2.4 PERCENT HIGHER IN THE FIRST FOUR
MONTHS OF 2002 THAN DURING THE CORRESPONDING PERIOD IN

2001.


26. ACCORDING TO SOME ANALYSTS, HOUSEHOLD CONSUMPTION
HAS BEEN DEPRESSED BY A PERCEIVED LOSS FROM THE
CONVERSION TO EUROS. ACCORDING TO SOME CONSUMER
ASSOCIATIONS, RESTAURANT PRICES INCREASED BY 20
PERCENT AS A RESULT OF THE EURO CHANGEOVER, AND MEAT
PRICES JUMPED 10 TO 20 PERCENT AFTER THE FULL
CONVERSION OF PRICES FROM LIRE TO EURO.


27. ACCORDING TO A RECENT POLL CARRIED OUT BY THE
LEADING CONSUMER ASSOCIATION, CODACONS, SEVENTY
PERCENT OF ITALIANS SURVEYED WOULD LIKE THE LIRA TO
RETURN; EIGHTY PERCENT ARE CONVINCED THEY SPEND MORE
IN EUROS THAN THEY DID IN LIRA PER MONTH. NINETY
PERCENT OF THOSE SURVEYED SAID THEY CALCULATE PRICES
AND PUT ACCOUNTS IN LIRA AS WELL AS EUROS. THIRTY
PERCENT SAID THAT THEY HAVE PROBLEMS WITH THE NEW
BANKNOTES, AND OFTEN CONFUSE THE ONE AND TWO EURO CENT
UNCLASSIFIED

PAGE 04 ROME 02958 05 OF 10 181527Z
COINS. THIS CONFUSION IS MOST EVIDENT IN THE SOUTH.
ACCORDING TO ANOTHER SURVEY CARRIED OUT BY DATAMEDIA,
SEVENTY-SIX PERCENT OF PEOPLE SURVEYED SAY THEY SPEND
MORE ON THE SAME QUANTITY OF GOODS SINCE THE ADOPTION
OF THE EURO. MOREOVER, WITH RESPECT TO DECEMBER 2001,
SIXTY PERCENT THINK THAT THE SAME AMOUNT OF INCOME
BUYS LESS IN REAL TERMS.


28. AFTER THE 2.4-2.5 PERCENT PEAKS IN YEAR-TO-YEAR
INFLATION REGISTERED IN THE FIRST FOUR MONTHS OF 2002,
THE CPI IS EXPECTED TO SLOW, PRODUCING A 2.4 PERCENT
AVERAGE INFLATION RATE THIS YEAR. WE EXPECT INFLATION
TO DECLINE TO TWO PERCENT IN 2003.

PRIVATIZATION
--------------


29. THE BERLUSCONI GOVERNMENT HAS PROPOSED THE SALE OF
STATE-OWNED ENTITIES AND OF GOVERNMENT-OWNED SHARES OF
MAJOR COMPANIES, INCLUDING ENERGY COMPANY ENEL AND
ENTE TABACCI ITALIANI (ETI - ITALYS NATIONAL TOBACCO
COMPANY.) UNCERTAIN MARKET CONDITIONS HAVE, HOWEVER,

UNCLASSIFIED

UNCLASSIFIED PTQ0880

PAGE 01 ROME 02958 06 OF 10 181528Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF359 181528Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4277
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2711
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 06 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 06 OF 10 181528Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

DELAYED THE TIMING OF SUCH SALES. WHEN THE MARKET
RECOVERS, THE GOVERNMENT HOPES SALES OF GOVERNMENT-
OWNED ENTITIES AND SHARES WILL BRING IN 60 BILLION
EUROS. THE FIRST GROUP TO BE PRIVATIZED WILL BE THE
RESIDUAL STAKE OF TELECOM ITALIA (3.46 PERCENT),THE
SALE OF ETI AND 85 PERCENT OF TIRRENA (MARITIME
TRANSPORTATION),PLUS THE SALE OF ANOTHER TRANCHE OF
ENEL (ELECTRICITY CONGLOMERATE).

LABOR
--------------


30. GOVERNMENT DATA FROM JANUARY 2002 SHOW THE
QUARTERLY NATIONAL UNEMPLOYMENT RATE AT 9.2 PERCENT,
DOWN FROM 10.2 PERCENT OF JANUARY 2001, WHICH IS THE
LOWEST LEVEL SINCE 1992. UNEMPLOYMENT DECREASED
ALSO IN ABSOLUTE TERMS BY 7.6 PERCENT FROM 2,379,000
IN JANUARY 2001 TO 2,198,000 IN JANUARY 2002.


31. TRADITIONAL REGIONAL DIFFERENCES REMAIN
UNCLASSIFIED

PAGE 03 ROME 02958 06 OF 10 181528Z
UNCHANGED, WITH THE SOUTHERN THIRD OF THE COUNTRY
HAVING AN 18.8 PERCENT (20.3 PERCENT IN JANUARY
2001) UNEMPLOYMENT RATE COMPARED TO 3.9 PERCENT IN
THE NORTHERN THIRD (4.2 PERCENT IN JANUARY 2001) AND
SEVEN PERCENT IN CENTRAL ITALY (EIGHT PERCENT IN
JANUARY 2001). EMPLOYMENT INCREASED BY 371,000
PEOPLE FROM 21,273,000 IN JANUARY 2001 TO 21,644,000
IN JANUARY 2002. THIS IS THE RESULT OF AN INCREASE
OF 99,000 WORKERS IN THE NORTH-EAST (UP 2.2 PERCENT
FROM JANUARY 2001) AND OF 73,000 WORKERS IN THE
NORTH WEST (UP 1.2 PERCENT FROM JANUARY 2001),
COMBINED WITH AN INCREASE OF 85,000 WORKERS IN THE
CENTER (UP TWO PERCENT FROM JANUARY 2001) AND
114,000 WORKERS IN THE SOUTH (UP 1.9 PERCENT).


32. ONE-FIFTH OF TOTAL EMPLOYMENT INVOLVES TEMPORARY
OR PART-TIME JOBS, PRIMARILY IN THE SERVICES SECTOR.


33. WE EXPECT UNEMPLOYMENT TO FALL FURTHER, TO BELOW
NINE PERCENT OVER THE FORECAST PERIOD.

COMMENT
--------------


34. FOR ITALYS GDP TO REBOUND MORE VIGOROUSLY AND
SUPPORT EXPORT GROWTH, THE GOI NEEDS TO MOVE AHEAD
WITH CUTS IN PUBLIC SPENDING, ACCELERATE ITS
PRIVATIZATION AND INFRASTRUCTURE PROGRAMS, AND ENACT
KEY REFORMS IN THE PENSION, LABOR AND TAX SYSTEMS
QUICKLY.

UNCLASSIFIED

PAGE 04 ROME 02958 06 OF 10 181528Z

35. ITALY, ALONG WITH THE REST OF THE EU, WILL BENEFIT
FROM A MODERATE ECONOMIC RECOVERY EXPECTED OVER THE
FORECAST PERIOD. THE SOONER A GLOBAL RECOVERY BEGINS,
THE HEALTHIER THE EXPORT-DRIVEN ITALIAN ECONOMY WILL
BE. WE SHARE LEADING THINK TANKERS VIEW, INCLUDING
THAT OF THE BANK OF ITALY, THAT THE GOIS OFFICIAL
FORECASTS FOR GDP GROWTH, THE BUDGET DEFICIT AND TAX
REVENUES ARE OVERLY OPTIMISTIC. THE GOI DESERVES
PRAISE FOR BEGINNING TO TACKLE THE THORNY ISSUES OF
PENSION AND LABOR MARKET REFORM. EVEN IF THESE REFORMS
ARE ADOPTED, HOWEVER, THEIR POSITIVE EFFECTS ON THE
ECONOMY WILL BE FELT ONLY BEGINNING IN 2003 OR LATER.

STATISTICAL APPENDIX: TABLE OF CONTENTS
--------------

SUMMARY TABLE


I. NATIONAL ACCOUNTS, INDUSTRIAL PRODUCTION,
N,
PRICES AND LABOR COSTS

UNCLASSIFIED

UNCLASSIFIED PTQ0883

PAGE 01 ROME 02958 07 OF 10 181528Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF362 181528Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4278
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2712
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 07 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 07 OF 10 181528Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

I.A.GROSS DOMESTIC PRODUCT 2000-2003
(PERCENT CHANGES)
I.B.INDUSTRIAL PRODUCTION AND
PRICE INDICES, 2000-2003
I.C.UNEMPLOYMENT RATE, 2000-2003

II. BALANCE OF PAYMENTS

II.A.FOREIGN TRADE PRICES AND
QUANTITIES
II.B.CURRENT ACCOUNT, 2000-2003
(BILLIONS OF EURO)
II.C.CURRENT ACCOUNT, 2000-2003
(USD BILLIONS)

III.PUBLIC FINANCES

III.A.MEASURES OF FISCAL BALANCES, 2000-2003
III. A. 1. PUBLIC ADMINISTRATION - NATIONAL
UNCLASSIFIED

PAGE 03 ROME 02958 07 OF 10 181528Z
ACCOUNTS BASIS (TRILLIONS OF LIRE)

HISTORICAL SERIES-REAL AND NOMINAL GDP 2000-2003


29. TABLES
--------------

SUMMARY TABLE
2001 2002 2003
(F) (F)
ANN. 4TH/ ANN. 4TH/ ANN. 4TH/
AVG 4TH/ AVG 4TH AVG 4TH

GDP 1.8 0.6 1.3 2.8 2.4 2.5
DOMESTIC DEMAND 1.6 0.3 1.4 3.0 2.4 2.5

INFLATION 2.8 2.4 2.4 2.4 2.0 2.1
2.8 2.4 2.4 2.4 2.0 2.1
PRODUCER PRICES 1.9 -1.0 0.1 1.9 2.3 1.8

UNEMPLOYMENT 9.5 9.3 9.2 9.1 8.9 8.8
RATE

PUBLIC
ADMINISTRATION
(AS PCT OF GDP)
EXPENDITURES 47.2 46.8 47.1
REVENUES 45.8 45.4 46.1
DEFICIT -1.4 -1.5 -1.0
PUBLIC
DEBT 109.4 105.0 102.0
UNCLASSIFIED

PAGE 04 ROME 02958 07 OF 10 181528Z

TRADE ACCOUNT
USD BILL. 15.9 15.4 20.4
PCT OF GDP 1.5 1.4 1.6

CURRENT ACCOUNT
USD BILL. 0.2 3.6 8.6
PCT OF GDP 0.0 0.3 0.7

AVG EXCHANGE RATE

USD/EURO 0.89 0.90 0.97
EURO/USD 1.12 1.11 1.03


I. NATIONAL ACCOUNTS, INDUSTRIAL PRODUCTION, PRICES
AND UNEMPLOYMENT

I.A. GROSS DOMESTIC PRODUCT (PERCENT CHANGE OVER SAME
PERIOD YEAR EARLIER, 1995 PRICES) NEW SERIES

UNCLASSIFIED

UNCLASSIFIED PTQ0885

PAGE 01 ROME 02958 08 OF 10 181529Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF368 181529Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4279
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2713
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 08 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 08 OF 10 181529Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

I.A.1. ANNUAL

2000 2001 2002F 2003F

CONSUMPTION 2.5 1.4 1.0 2.2
.2
PRIVATE 2.7 1.1 1.3 2.5
PUBLIC 1.7 2.3 0.1 1.0
FIXED INVESTMENT 6.5 2.4 2.5 2.5
CONSTRUCTION 5.6 3.7 2.0 1.7
MACHINES/EQUIPMENT 7.1 1.5 2.8 3.1
EXPORTS 11.7 0.8 1.5 5.7
IMPORTS 9.4 0.2 1.8 6.1
GDP 2.9 1.8 1.3 2.4

ADDENDUM:
GROSS ASSET FORMATION 0.9 2.6 2.7 3.3
TOTAL DOMESTIC DEMAND 2.1 1.6 1.4 2.4
FINAL DOMESTIC DEMAND 3.3 1.6 1.3 2.3

UNCLASSIFIED

PAGE 03 ROME 02958 08 OF 10 181529Z

I.B.2. FOURTH QUARTER OVER FOURTH QUARTER

IV00/ IV01/ IV02/ IV03/
IV99 IV00 IV01F IV02F

CONSUMPTION 2.5 1.0 2.2 2.1
PRIVATE 2.6 0.3 2.5 2.5
PUBLIC 2.0 2.0 0.9 0.9
FIXED INVESTMENT 3.8 1.8 2.8 3.0
CONSTRUCTION 3.8 3.7 2.5 2.0
MACHINES/EQUIPMENT 3.8 0.6 3.1 3.1
EXPORTS 9.2 -2.5 5.7 6.2
IMPORTS 7.0 -3.8 6.6 6.1

GDP 2.6 0.6 2.8 2.5

ADDENDUM:
GROSS ASSET FORMATION -0.3 -1.2 6.2 3.7
TOTAL DOMESTIC DEMAND 1.9 0.3 3.0 2.5
FINAL DOMESTIC DEMAND 2.8 0.9 2.3 2.3

I.C. INDUSTRIAL PRODUCTION AND PRICE INDICES
PERCENT CHANGE OVER SAME PERIOD YEAR EARLIER

2000 IV00 2001 IVO1 2002 IV02 2003 IV03
(F) (F) (F) (F)

INDUSTRIAL
PRODUCTION 3.1 1.3 -0.7 2.9 0.5 1.9 3.5 2.3
UNCLASSIFIED

PAGE 04 ROME 02958 08 OF 10 181529Z

INFLATION
(IPCA) 2.5 2.7 2.8 2.4 2.4 2.4 2.0 2.1

PRODUCER
PRICES(PPI) 6.0 6.5 1.9 -1.0 0.1 1.9 2.3 1.8

GDP
DEFLATOR 2.2 2.7 2.6 3.3 2.0 1.5 1.0 1.0

I.D. UNEMPLOYMENT RATE 1999-2003

1999 2000 2001 2002(F) 2003(F)

YEAR 11.4 10.6 9.5 9.2 8.9
4TH QTR 11.1 10.0 9.3 9.1 8.8

II. BALANCE OF PAYMENTS

UNCLASSIFIED

UNCLASSIFIED PTQ0887

PAGE 01 ROME 02958 09 OF 10 181529Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF376 181529Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4280
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2714
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 09 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 09 OF 10 181529Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

II.A. FOREIGN TRADE PRICES AND QUANTITIES
(PERCENTAGE CHANGE FROM PREVIOUS YEAR, LIRE PRICES)

2000 2001 2002 2003
(F) (F)
EXPORT VOLUME 11.1 0.1 1.5 5.7
UNIT VALUE 6.0 3.3 0.5 2.3
IMPORT VOLUME 10.0 -0.3 1.8 6.1
UNIT VALUE 14.2 0.5 0.6 1.0
TERMS OF TRADE -7.2 -2.9 -0.1 1.3
2.7

II.B. CURRENT ACCOUNT (BILLIONS OF EURO)

2000 2001 2002 2003
(F) (F)
TRADE BALANCE 10.4 17.8 17.1 21.1
EXPORTS FOB 260.9 270.9 276.2 298.5
UNCLASSIFIED

PAGE 03 ROME 02958 09 OF 10 181529Z
IMPORTS FOB 250.5 253.1 259.1 277.4
BALANCE AS PCT.
OF GDP 0.9% 1.5% 1.4% 1.6%

INVISIBLES -16.7 -18.0 -13.1 -12.2
SERVICES 1.1 0.3 0.7 1.0
INCOMES -13.1 -11.6 -10.5 -9.7
NET TRANSFERS -4.7 -6.7 -3.3 -3.5

CURRENT ACCOUNT -6.3 -0.2 5.0 8.4
PCT OF GDP -0.5% 0.3% 0.4% 0.6%

AVERAGE EXCHANGE RATES
(EURO/USD) 1.08 1.12 1.11 1.03
(USD/EURO) 0.92 0.90 0.90 0.97

II.C. CURRENT ACCOUNT (USD BILLION)

2000 2001 2002 2003
(F) (F)
TRADE BALANCE 9.6 15.9 15.3 20.4
EXPORTS FOB 241.1 242.6 248.5 288.9
IMPORTS FOB 231.5 226.7 233.2 268.5
BALANCE AS PCT.
0F GDP 0.9% 1.5% 1.4% 1.6%

INVISIBLES -15.4 -16.1 -11.8 -11.8
SERVICES 1.1 0.3 0.6 1.0
UNCLASSIFIED

PAGE 04 ROME 02958 09 OF 10 181529Z
INCOMES -12.1 -10.4 -9.4 -9.4
NET TRANSFERS -4.4 -6.0 -3.0 -3.4

CURRENT ACCOUNT -5.8 -0.2 3.6 8.6
PCT OF GDP -0.5% 0.0% 0.3% 0.7%

III. PUBLIC FINANCES

MEASURES OF FISCAL BALANCES, 2000-2003

III. A. 1. PUBLIC ADMINISTRATION - NATIONAL
ACCOUNTS BASIS (BILLIONS OF EURO)

REVENUES EXPENSES BALANCE PRIMARY
BALANCE

2000 520,828 540,891 -20,063 54,870
PCT OF GDP 44.7 46.4 -1.7 4.7

2001 557,203 574,817 -17,614 54,870
PCT OF GDP 45.8 47.3 -1.5 4.5

UNCLASSIFIED

UNCLASSIFIED PTQ0889

PAGE 01 ROME 02958 10 OF 10 181529Z
ACTION EB-00

INFO LOG-00 AID-00 CEA-01 CIAE-00 CTME-00 DODE-00 WHA-00
EAP-00 EUR-00 EXIM-01 E-00 UTED-00 FOE-00 VC-00
FRB-00 IPS-01 H-01 TEDE-00 INR-00 ITC-01 AC-01
NSAE-00 OMB-01 OPIC-01 ACE-00 SP-00 SSO-00 STR-00
TEST-00 TRSE-00 USIE-00 FMP-00 G-00 SAS-00 /008W
-------------- BEF383 181529Z /07
P 181132Z JUN 02
FM AMEMBASSY ROME
TO DEPT OF TREASURY WASHDC PRIORITY
SECSTATE WASHDC 4281
INFO USDOC WASHDC
DEPT OF LABOR WASHDC
EU MEMBER STATES COLLECTIVE
AMEMBASSY OTTAWA
USEU BRUSSELS 2715
AMEMBASSY TOKYO
AMCONSUL MILAN
AMCONSUL FLORENCE
AMCONSUL NAPLES
AMCONSUL FRANKFURT

UNCLAS SECTION 10 OF 10 ROME 002958

SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
LABOR FOR ILAB
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, JONES
UNCLASSIFIED

PAGE 02 ROME 02958 10 OF 10 181529Z
STATE PASS CEA
STATE PASS FRB FOR GUST
FRANKFURT FOR WALLAR
USDOC 6800/ITA/TD/OTEA/TISD/HSCHULTZ AND
4212/ITA/MAC/OEURA/CPD/DDEFALCO

E.O. 12958: N/A
TAGS: ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT ECON EFIN ELAB IT KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP KPRP
SUBJECT: ECONOMIC FORECAST FOR ITALY 2002-2003: JUNE
2002 PREDICTIONS

2002 (F) 569,990 588,209 -18,219 57,350
PCT OF GDP 45.4 46.8 -1.5 4.6

2003 (F) 598,572 611,558 -12,986 58,805
PCT OF GDP 46.1 47.1 -1.0 4.5

IV. HISTORICAL SERIES-REAL AND NOMINAL GDP 2000-2003
(MILLIONS OF EURO)

PERIOD GDP GDP
(1995 PRICES) (CURRENT PRICES)

ES)

2000 1,012,804 1,164,766
Y/Y CHG 2.9% 5.1%
2001 1,030,911 1,216,581
Y/Y CHG 1.8% 4.4%
UNCLASSIFIED

PAGE 03 ROME 02958 10 OF 10 181529Z
2002 1,044,145 1,256,471
Y/Y CHG 1.3% 3.3%
2003 1,068,891 1,298,570
Y/Y CHG 2.4% 3.4%

SEMBLER

UNCLASSIFIED

>
2002ROME02958 - Classification: UNCLASSIFIED