Friday 23 March 2018

Jerermy Warner: Italy is sinking into depression ... and that's before any act of default

Jeremy Warner

HERE we go. The European economy seems already to have gone over the edge of the cliff, and that's before any of the eurozone 17 has technically defaulted. This morning's industrial production figures from Italy were a disaster, with output down a staggering 4.8pc in September.

OK, so Italian IP tends to be quite volatile – the previous month was sharply up. But regrettably, it's part of a pattern, only the worst in a bad bunch. In the same month, French industrial production was down 1.7pc and German industrial output by 2.7pc. The "mild recession" predicted by Mario Draghi, the European Central Bank's new president, last week, may already be a very serious one.

Italy managed successfully to offload €5bn of one year bonds onto the markets this morning – albeit at a penalty interest rate – but this was never going to be the real test of continued market appetite for Italian paper. That comes next week, with the auction of longer dated five year bonds. The longer the maturity, the greater the perceived risk of default, so it's going to be tough.

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