By  on January 11, 2007

MILAN — A surge in domestic demand in the second half of 2006 helped Italy's fashion industry report a 6 percent growth in sales last year to 67.58 billion euros, or $88.36 billion at current exchange rates.

"June and July were even better than expected," said Mario Boselli, head of the Italian Chamber of Fashion. "A recovery in domestic demand in the second half of 2006 came after a recovery in foreign demand that started at the end of 2005, driven by an improved economy in Europe."

Boselli attributed the growth in domestic demand to an improvement in consumer confidence in the economy. In a statement presenting the industry's economic trends, the chamber also attributed the increase in confidence to shoppers overcoming their "euro changeover shock" and the consequent general feeling of lower purchasing power following the introduction of the euro.

For 2007, the chamber expects a 3.5 percent growth in sales to 69.9 billion euros, or $91.4 billion. "Forecasts for 2007 are strongly influenced by future developments in domestic demand. The most likely scenario for 2007 is a weakening of the international macroeconomic framework, leading to an export growth lower than in 2006 and a stabilization of the domestic demand that will hold at current levels at least until the [first] half of the year," said the statement.

Boselli said the positive trends seen in the second half of last year are expected to continue at the beginning of this year but will be offset by more difficult issues in the latter part of 2007, such as higher interest rates and tighter fiscal policies in Europe. The euro/dollar exchange rate will also weigh on the year, as the chamber expects a "rebalancing of exchange rates toward a weaker euro against the U.S. dollar," which will "not provide additional fuel to exports in 2007. Should exchange rate values remain around $1.30 per euro during the year, the Italian fashion industry will see turnover reduced by 1 [percent] to 2 percent from its potential growth."

The chamber said it expected imports to grow 9 percent to 26.9 billion euros, or $35.17 billion, and exports to grow by about 3 percent to 41.8 billion euros, or $54.7 billion, in 2007. "We will have to be careful in 2008, when [World Trade Organization] international quotas will be dropped, although China will be less of a threat for the industry then, compared to 2005," said Boselli.

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