This record is a partial extract of the original cable. The full text of the original cable is not available.

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