ITALY'S GDP GREW 0.5 PERCENT THIRD QUARTER 2003

UNCLAS ROME 005262

SIPDIS


DEPT FOR EUR/WE, EUR/ERA, EB/IFB/OMA
PARIS ALSO FOR USOECD
TREAS FOR OASIA HARLOW, STUART
FRANKFURT FOR WALLAR
USDOC 4212/ITA/MAC/OEURA/DDEFALCO
STATE ALSO PASS USTR

E.O. 12958: N/A
TAGS: ECON EFIN ETRD IT EUN
SUBJECT: ITALY'S GDP GREW 0.5 PERCENT THIRD QUARTER 2003



1. ON NOVEMBER 14, ISTAT, ITALY'S CENTRAL INSTITUTE OF
STATISTICS, RELEASED PRELIMINARY DATA ON GDP GROWTH IN
THE THIRD QUARTER 2003. GDP GREW BY 0.5 PERCENT BOTH
FROM THE PREVIOUS QUARTER AND COMPARED WITH THE
CORRESPONDING PERIOD IN 2002. THIS GROWTH FOLLOWS TWO
DECREASES IN A ROW IN THE FIRST TWO QUARTERS OF THE YEAR
AND IS THE BEST RESULT REGISTERED BY ITALIAN GDP SINCE
THE FIRST QUARTER 2001.


2. FINANCE MINISTER TREMONTI TRUMPETED THE RETURNS BY
DECLARING, "THE WORST IS OVER NOW," ADDING LATER THAT NOT
JUST THE DATA WAS IMPORTANT, BUT THAT IT INDICATED AN
UPWARD TREND. OTHERS WERE LESS CERTAIN. DEPUTY FINANCE
MINISTER BALDASSARRI COMMENTED THAT 0.5 PERCENT (THIRD
QUARTER 2003 GROWTH AND ALSO THE GOI OFFICIAL GDP GROWTH
TARGET FOR 2003) STILL REPRESENTS MODEST GDP GROWTH IN AN
ECONOMY THAT HAS A POTENTIAL YEAR-OVER-YEAR GROWTH
RANGING FROM 2.5 TO 3 PERCENT. OTHER ANALYSTS, SUCH AS
THE RESEARCH DEPARTMENT OF CONFINDUSTRIA, THE LEADING
INDUSTRY ASSOCIATION, POINTED OUT THAT "THE RECOVERY
APPEARS FRAGILE AND RELATIVELY MODEST." THE RESEARCH
DEPARTMENT OF UNICREDIT, ONE OF ITALY'S TOP FIVE BANKS,
ALSO DECLARED THAT, "THE DATA REFLECTS GOOD INDUSTRIAL
PERFORMANCE, BUT IT IS TOO EARLY TO TALK OF ECONOMIC
RECOVERY, CONSIDERING THE NOT POSITIVE PERFORMANCE OF
FOREIGN TRADE."


3. (NOTE: ACCORDING TO ISTAT, EXPORTS DECREASED BY 3.0
PERCENT, WHILE IMPORTS INCREASED BY 0.8 PERCENT IN THE
FIRST NINE MONTHS OF 2003, COMPARED WITH THE
CORRESPONDING PERIOD IN 2002. ITALY'S FOREIGN TRADE
THROUGH SEPTEMBER 2003 REGISTERED AN E600 MILLION
DEFICIT, COMPARED WITH AN E6.8 BILLION SURPLUS DURING THE
SAME TIME PERIOD IN 2002. END NOTE).


4. IN ADDITION, OTHER ANALYSTS POINT OUT THAT THE THIRD
QUARTER OF 2003 HAD FOUR WORKING DAYS MORE THAT THE
PREVIOUS QUARTER AND THE CORRESPONDING PERIOD IN 2002.
GIUSEPPE TURANI, AN ECONOMIC COMMENTATOR OF THE
INFLUENTIAL LEFTIST DAILY "LA REPUBBLICA" COMMENTED THAT
THIS LONGER REPORTING PERIOD MAKES THE ITALIAN DATA NOT
FULLY COMPARABLE WITH THAT OF OTHER EUROPEAN COUNTRIES.
TURANI ALSO DECLARED THAT THE DATA JUST PROVES THAT "WE
ARE ALIVE, BUT NOTHING ELSE."


5. STILL OTHERS HAVE POINTED OUT THAT WHILE THIS
PRELIMINARY GDP GROWTH DATA DOES SHOW THAT INDUSTRY AND
SERVICES WERE RESPONSIBLE FOR THE GROWTH, THE DATA DOES
NOT INDICATE WHETHER GROWTH WAS DRIVEN BY CONSUMPTION OR
EXPORTS OR MORE BY A SIMPLE INCREASE OF INVENTORIES (IN
WHICH CASE THE GROWTH MAY NOT BE SUSTAINED).


6. AS FOR COMPARISONS WITH OTHER EU MEMBER ECONOMIES, THE
ISTAT DATA SHOWS THAT ITALY GREW MORE THAN FRANCE AND
GERMANY.


7. COMMENT. IT IS STILL DIFFICULT TO DETERMINE WHETHER
THIRD QUARTER DATA TRULY REPRESENTS THE FIRST SIGNS OF
ECONOMIC RECOVERY. TWO IMPORTANT ITALIAN RESEARCH
INSTITUTES HYPOTHESIZE THAT THE SEPTEMBER AND OCTOBER
DOWNTURN IN INDUSTRIAL ACTIVITY MIGHT NEGATIVELY AFFECT
OVERALL GDP GROWTH IN THE LAST QUARTER OF THE YEAR. THAT
SAID, A MODEST 0.25 PERCENT INCREASE IN THE LAST QUARTER
2003 WOULD STILL ASSURE A 0.5 PERCENT GROWTH FOR THE
YEAR. END COMMENT.
SEMBLER

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2003ROME05262 - Classification: UNCLASSIFIED