* Confidence falls to lowest in index history
* Confidence series began in Jan 1996
* Consumers more pessimistic about savings, buying potential
By Steve Scherer
ROME, Dec 23 Italian consumer morale
plummeted to its lowest in 16 years in December after Prime
Minister Mario Monti introduced a 33-billion-euro austerity
package that included tax hikes and pension cuts, data showed on
National statistics bureau ISTAT's headline consumer
confidence index fell more than expected to 91.6 in December,
the lowest since the data series began in 1996, after
unexpectedly rising to a revised 96.1 in November.
The data was below the median forecast of 95.0 in a Reuters
survey of 11 analysts. Forecasts spanned from 93.5 to 96.5. The
survey was conducted between Dec 1 and Dec 16, mostly after the
Cabinet's Dec 4 passage of the austerity measures.
On Thursday, the Senate cast the final vote to approve the
sweeping series of tax increases, pension reforms and spending
Among the measures that hit consumers immediately were
petrol tax increases and the knowledge on the part of some
pensioners that their monthly payments be adjusted for
inflation. (To see a Factbox with details of austerity measures,
"The budget restrictions will reduce people's disposable
income, their capacity to accumulate savings, and new taxes have
pushed up inflation," said Paolo Mameli, an economist at Intesa
Sanpaolo in Milan.
A previously introduced VAT increase and the new petrol
levies are pushing consumer prices higher, Mameli said. Intesa
forecasts consumer spending will decline by almost a full
percentage point next year.
"It's undeniable that consumer sentiment is going to get
worse before it gets better," he said.
The decline in sentiment comes as Italy heads into what
economists say will be a prolonged recession. Gross domestic
product sank 0.2 percent in the third quarter, as did consumer
spending, and isn't seen rebounding before the second half of
next year, economists say.
Italian employers' lobby Confindustria predicted earlier
this month that the economy will shrink by 1.6 percent next
year, four times the 0.4 percent drop forecast by the
Monti took office five weeks ago to restore investor
confidence in Italy's ability to tackle its high debt and
address its economic woes.
While bond yields have come down, with the 10-year issue
steadily below 7 percent, the austerity package has failed to
bring them back to more sustainable levels of about 5 percent.
On Friday, the 10-year yield again hovered just below 7 percent.
To restore consumer confidence, European authorities must
take more decisive action to resolve the financial crisis, and
Italy must boost its potential growth rate, Mameli said.
On Thursday, Monti said he would push euro zone authorities
to put more focus on growth now that Italy had put its own house
in order, and he said his government would begin work on
spurring activity after a decade of near-zero growth.
The severity of Monti's austerity package has taken a toll
on his popularity, which fell to 46 percent from 61 percent the
previous week, according to a poll published in Corriere della
Sera on Sunday.
Consumer spending has long been an Achilles heel of the
Italian economy. Friday's report showed that consumers were more
downbeat on Italy's current and future economic situation, and
had grown increasingly pessimistic about their ability to save
money and buy durable goods.
A sub-index measuring confidence future savings fell to -85
from -72 in November, while a sub-index measuring the ability to
buy durable goods falling to -99 from -87.
Another sub-index measuring their outlook on Italy's economy
fell to -55 from -46, and another showed that their view of the
current economic situation fell to -139 from -130.
Analysts say ISTAT's consumer confidence index shows little
immediate correlation with spending patterns, though it does
reflect longer term trends.
Retail sales in October -- the most recent data available --
fell an unadjusted 1.5 percent on the year, the sixth decline in
as many months, indicating a marked contraction in real or
inflation-adjusted terms. Inflation was 3.4 percent in October.