By Gavin Jones

ROME (Reuters) – Italian business and consumer confidence unexpectedly fell in October, data showed on Friday, with a multi-year low among companies casting a shadow over growth prospects for the third-largest economy from the euro zone.

The National Institute of Statistics’ ISTAT composite index of business sentiment, which combines surveys of the manufacturing, retail, construction and services sectors, fell to 93.4 from September’s level of 95.6.

The October figure was the lowest in three years for which ISTAT immediately provided data, and was likely the weakest since the economy was crippled by the COVID-19 pandemic in 2020.

A steep decline in morale in service industries and a more modest decline among manufacturers offset improved sentiment in the construction and retail sectors, ISTAT figures show.

The data is a blow to Giorgia Meloni’s government, which this month presented a 2025 budget aimed at reducing the fiscal deficit while cutting taxes for low- and middle-income earners.

The government said this month that the 1 percent growth target for this year looks hard to meet after ISTAT revised down data for the first and second quarters.

The Bureau of Statistics will issue a preliminary estimate for third-quarter gross domestic product on October 30.

Most analysts expect Italy’s growth in 2024 to be around the same rate as the 0.7% announced last year, and the government is also seen missing its 1.2% target for 2025.

The International Monetary Fund and Italian business lobby Confindustria this week issued forecasts for 0.8% and 0.9% respectively for 2025, both bodies implicitly indicating that the expansionary measures in Rome’s budget will not stimulate the economy as desired.

The ISTAT sub-index of manufacturing confidence fell to 85.8 in October from 86.6 the previous month, below a median forecast of 87.0 in a Reuters poll of nine analysts.

Consumers were also gloomier in October, with their morale index falling to 97.4 from 98.3 the previous month, below the Reuters poll forecast of 98.5.