ROME: Luxury sales are set to decline by almost €1bn by the end of this year in Italy, the home of leading brands such as Armani, Prada and Versace.

According to Luca Solca, the head of luxury goods research at Exane BNP Paribas, the investment group, Italy's current economic austerity programme has resulted in an "abrupt hit" on the industry.

Despite the fact tourist spending is likely to expand by 20% year on year, Solca predicted sector sales would fall from the €16.6bn recorded in 2010, as estimated by Bain & Company, the consultancy, and Altagamma, the trade body.

"Luxury goods sales in Italy will still have shrunk to account for 7.6% per cent of the global market, or €15.7bn," Solca told the Financial Times.

One government measure reported to be holding back the market are the restrictions placed on making cash payments worth over €1,000, and intended to reduce tax evasion.

Increased taxes on property are thought to have played a similar role, while on-going consumer caution and employment uncertainly are also exerting a negative impact.

Armando Branchini, Altagamma's executive director, stated that up to 70% of high-end sales in cities like Milan are attributable to tourists, but this audience cannot totally offset the drop in local demand.

Branchini added that many young buyers have experienced a potent mixture of consumption fatigue and declining disposable income levels. "The cupboards of the young are full," he said.

Tod's, which alongside its namesake brand owns the Hogan, Fay and Roger Vivier ranges, saw sales fall by 16.9% in the third quarter as a result of the domestic situation in Italy.

It has closed 130 stores from a total of 800, and revealed that Italy now yields just 43% of its business, compared with 53% a year ago, as sales in the US and Asia rise.

Thomas Mesmin, an analyst at Cheuvreux, the brokerage, asserted that "the collapse of Italy" means Tod's must ramp up its "internationalisation and premiumisation" drive.

Valentino, the fashion house, was purchased by the Qatari royal family for roughly €700m in June 2012, but the outlook for smaller wholesalers is less positive. "The crisis is killing them," Solca said.

Data sourced from Financial Times; additional content by Warc staff