In response to Italians Cut Spending in Worst Christmas in 10 Years; Harsh Times Ahead for All Europe (an article translated from Spanish that had me puzzled about a number of things even though I could tell spending fell dramatically), reader Andrea offers a very nice explanation of just how bad things are in Italy.
I can help your readers better understand the reported “spending cuts in Italy”.
Coldiretti is the farmers lobby and they claim that for Christmas day dinner and lunch they spent 2.3 billion Euros, 18% less than last year and the lowest figure since 2001: Christmas day dinner and lunch (and generally speaking food) is typically a strong tradition that Italians wants to keep as much abundant and tasty as possible even through the worst times, this is why is such an important figure.
The other figure you mention (“The consumer group estimates “as much as 40 percent”) is related to something completely different and it is an estimate. Just after the Christmas period (from the first days of January) in Italy and in Europe in general you have a “discounted sales”, where retailers sell items at a discounted price to empty their stocks and of the items unsold during the normal season.
Typically this is a consistent part of the sales of the year and people used to rush in the shops since the very first hours of the first days to get the best bargains.
Codacons (one of the biggest consumer associations) estimates that the “discounted sales” this year will be 30%-40% less than last year. Federconsumatori (another consumer association) instead estimates a reduction of 19/20%, which is probably more close to reality (people have probably waited this season to buy something not urgent). If this happens, it will certainly be a huge sign that recession is beating hard.
Regarding total spending during the holiday season, it is quite hard to find a comparison with the last year. The typical comparison reported by media is between the forecast of another consumer association (Federconsumatori) and the actual results: Federconsumatori forecast 4.4 billion and instead the total was 4 billion, so 10% less than forecast.
However, looking in the Federconsumatori Website I found the final result for last year: roughly 5 billion. Therefore, Italy had a 20% decline through Christmas, not the 9% cited in the link you referenced. That 9% drop was based on estimates that had already factored in some of the decline.
This was a massive spending reduction for a season that makes a big part of the revenues of the year. Please note that in Italy employees get the so-called “tredicesima”, a thirteenth monthly salary just before the Christmas period, and this is cash that typically helped to lift sales during this period.
By the way, on Federconsumatori website you can find a lot of statistics about spending, prices and so on, unfortunately in Italian.
The most hit seem to be clothes and shoes sectors, which are by the way typical sectors that instead have a lot of sales during the “discount season”.
Actually I have been in Italy a few days around Christmas and generally speaking the atmosphere is quite gloom: all the time on the media the main topic is austerity, how much it will affect the spending power, frugal Christmas and so on.
The tax hikes are quite massive : apart the tax on house ownership (which was canceled by Berlusconi government 3 years ago and so is just a comeback), there will be tax increase on revenues applied by each Italian region, there has been increase between 5 and 10% of fuel (petrol, diesel, propane and methane).
Federconsumatori estimates that the sum of the all the austerity budget laws passed this year (Berlusconi + Monti) will reduce the spending power of a typical family of 7.6%.
Email from an Expatriate Living in Italy
Here is a second email from a reader. This one is from Mikkel, an expatriate who now lives in Italy.
I am a expat living in Italy for the last 6 years.
Italy is a wonderful, but strange country. In a politically incorrect and stereotypical analysis of Italy’s problems, the North produces, the South lives off the wealth created by the North, and the omnipotent elected assembly (where you do not vote for the candidate, but the party), allows the main politicians like Berlusconi to stay in office nearly forever.
Fortunately, Italy is a country of savers. However, huge fiscal pressure have forced over 60% the Italians to spend less. A liter of gas costs now 1.70 euros (over half is in taxes). That amounts to $8.35/gallon.
Assuming one has a job (official unemployment rate is 8.5%), the average salary is 1200 euro net/month or less, but you still need to pay 21% IVA on all goods, car insurance, gas + taxes, utilities, property and car taxes, etc. Gross salaries are on the order of 2500 euros/month. How much money do people have left to save and invest for the future?
It will be interesting to see what happens.
Massive European Recession On the Way
As I have said numerous times, European countries are in dire need of work rule changes, less government spending, less bureaucracy, and fewer taxes. Unfortunately, bureaucrats have responded with increased taxes.
The recession in Europe, which has already started, will be massive.
Mike “Mish” Shedlock
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