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Weak wage rises add to alarm over Italian economy

Hourly pay rose by lowest level since 1982, said stats agency

28 January, 19:11
Weak wage rises add to alarm over Italian economy (By Sandra Cordon) (ANSA) - Rome, January 28 - Alarm bells sounded Tuesday over the prospects for recovery by Italy's recession-ravaged economy after the national statistics agency said that salary increases last year rose by the smallest amount seen in over 30 years.

Hourly contract wages rose by just 1.4% - the lowest since Istat began tracking these figures in 1982 - according to the agency.

It noted that wage growth was still a bit stronger than last year's average rate of inflation of 1.2%, suggesting that real incomes edged up by 0.2% last year.

But together, the stats provide further evidence of how far Italians have fallen in the double-dip recession that hit lows in the past two years that have not been seen since the Second World War.

That said, Istat also reported that consumer confidence in Italy edged up slightly this month, reaching 98 points compared with 96.4 in December 2013.

Consumer confidence has seesawed, yet consistently healthy confidence is crucial to an economic recovery as people tend to spend less when they feel pessimistic about the outlook and particularly, their prospects for employment and job security. The economic outlook received a boost last month when Istat reported that gross domestic product (GDP) was flat in the third quarter of last year after eight consecutive quarters of negative growth and was forecast to return to positive growth in the last three months of 2013.

But any confidence coming from that report was tempered by subsequent forecasts that the expansion will continue to be very weak.

In that vein, on Tuesday international ratings agency Standard & Poor's (S&P) said that annual economic growth in Italy will average only 0.5% between now and 2016.

That estimate was below the pace of GDP growth estimated by the Bank of Italy, which says the economy will expand by 0.7% this year, and other agencies, which have forecast a GDP expansion in 2014 of 0.6%.

S&P said it was also keeping Italy's sovereign debt under watch because of uncertainty over government policies and a debt that is expected to rise to 134% of GDP by the year-end.

The agency, in a report on sovereign debt in European economies, urged the Italian government to take further measures to boost productivity, liberalize labour markets and increase GDP growth. It said it could revise its outlook for Italian debt "if the government realized structural reforms in labor markets and products and services ...(leading to) a higher level of growth in the Italian economy". Last week, the International Monetary Fund said that although Italy looks to be emerging from its longest recession in two years it expects the Italian economy to slowly recover, with growth of 0.6% this year and 1.1% in 2015.

Evidence of a loss of confidence by business was also seen Tuesday when the Italian government summoned Electrolux managers for emergency talks after the electrical-appliance multinational announced a shock wage-cut plan it said was necessary to keep its Italian plants running.

Electrolux said it is proposing cutting wages in Italy by three euros an hour, which it said was an 8% cut and would amount to a reduction of less than 130 euros a month in workers' net salaries.

The company said it had also proposed freezing salary increases due to seniority and other rises linked to the sector's national collective contract for three years in order to "cool the inflation of labour costs, which is responsible for the continuing growth in the competitive gap with the countries of Eastern Europe".

Electrolux added that it was willing to consider "other forms of reducing labour costs with lower or, if possible, no consequences on salaries". But with Italy's jobless rate hitting a record high of 12.7% in November, the latest available statistics, workers have little bargaining power.

Youth unemployment in Italy reached almost 42%, part of a problem reaching across the continent and leading the managing director of the International Monetary Fund (IMF) Christine Lagarde to sound the alarm on record unemployment levels in Europe.

In a speech in New York, she noted that almost 20 million people are jobless across Europe.

"We cannot say the crisis is over until its impact on the labor market has not reversed," said Lagarde. When unemployment is high, growth is slow because people spend less and companies invest and hire less, Lagarde added, stressing that the most effective way to boost employment is through economic growth.