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Italian business confidence rises as economy accelerates

Italian business confidence rose more than expected in February as the fastest economic expansion in five years prompted more optimism about production and orders.

The Isae Institute's confidence index rose to 95.4 from a revised 94.7 in January, the state-funded research center said today in Rome. The reading was higher than the 94.6 median forecast of 25 economists in a Bloomberg News survey. „The economy's performance last quarter was a surprise and it should have some spillover effect at the beginning of the year too,” said Ilaria Spinelli, an economist at Fideuram Investimenti Sgr in Milan.
Italy's $1.8 trillion economy, the euro region's third-largest, grew a bigger-than-expected 1.1% last quarter, aided by the fastest acceleration in the euro region's economy in six years. The government will likely raise its 2007 growth forecast as the 2% growth for last year topped its own predictions, Deputy Finance Minister Roberto Pinza said February 20.
„The expectations for demand and supply as well as for the Italian economy in general have greatly improved in February,” Isae said in today's note. An index measuring expectations for production over the next three months rose to 20, the highest level in five months, from 17 in January. Foreign orders rose to minus 5 from minus 8 last month.

Other indicators have indicated that Italian economic growth is gaining momentum. Consumer confidence rose more than expected in February, while industrial production rose the most in almost two years in December. Italy's jobless rate fell to the lowest in more than 14 years in the third quarter. Optimism about the Italian economy may suffer in the coming weeks after the resignation of Prime Minister Romano Prodi late yesterday after only nine months in office.
He stepped down following a loss for his ruling coalition in a key parliamentary vote on foreign policy „The main risk is a prolonged period of political uncertainty,” said Marco Valli, an economist at UniCredit Markets & Investment Banking in Milan. Italian President Giorgio Napolitano begins consulting with political leaders today and may ask Prodi or one his allies to try to form a new government as way of avoiding calling new elections.

Signals on European business confidence have been mixed. French business confidence rose for the first month in three in February, the Paris-based national statistics office said in a separate report today, while Germany business confidence probably declined for a second month, a survey of economists polled by Bloomberg News shows.
Munich-based Ifo will release the report tomorrow. The momentum of Europe's economy as a whole, which grew 2.7% last year, the fastest pace since 2000, continues to give the European Central Bank scope to lift interest rates. Rising interest rates coupled with increased taxes may curb optimism among consumers and manufacturers in coming months.
Prime Minister Romano Prodi's budget plan, which went into effect last month, raised taxes for most people who earn more than €40,000 ($52,400) a year. ECB President Jean-Claude Trichet has signaled the ECB will raise the benchmark 3.5% interest rate in March, which would be the seventh increase since the end of 2005. Isae questioned about 4,000 manufacturers between February 1 and February 16 for the survey. (Bloomberg)