Research Dept. News
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Monthly Report, num 336 - June 2010
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European Union - Italy
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Italy: public accounts don't hamper a return to growth
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Italian GDP grows again in the first quarter.
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The Italian economy was growing again in the first quarter of 2010, with a 0.5% rise in GDP compared with the previous quarter. This figure, better than analysts' estimates, and the upgrade in the last data for 2009, raised the year-on-year increase in GDP to 0.6%, its first positive figure in two years. However, trends in high frequency indicators are not completely in line with this upswing, suggesting a certain weakness in the recovery.
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Regarding demand, retail sales for the first quarter were down 0.4% compared with the same period in 2009, at levels similar to those of 2005. Moreover, the rise in unemployment in April, estimated to be close to 8.8%, and the low consumer confidence do not suggest signs of private consumption getting stronger in the short term. In April, inflation grew by one tenth of a percentage point, to 1.5%, partly boosted by higher crude prices, although still at a historically low level.
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Foreign demand didn't contribute to growth in the Italian economy either in this period. In spite of the 9.2% rise year-on-year in exports in the first quarter of the year, the trade deficit increased again compared with the previous quarter.
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Industrial production progresses in the first few months of 2010.
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That's why the only signs of recovery in the first quarter of 2010 came from the supply side. Industrial production posted further growth in the first quarter of the year, distancing it from the minimum reached in March 2009. The upswing in industrial confidence and orders in April suggests this trend will continue over the coming months. Investment is therefore expected to make a positive contribution in the first half of 2010, particularly if industrial capacity utilization grows slightly.
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The Italian government will present a budget adjustment plan.
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In spite of the good news of the recovery in GDP, the Italian government must act to sort out its battered public accounts, with a debt close to 115% in 2009. This is a matter of priority in the European Union because of the instability caused by the mismatched fiscal situations of the different governments. That's why the Italian executive is studying a budget adjustment plan similar to those presented by other European countries. This would include measures such as raising the retirement age, reducing the number of public employees, repealing some fiscal benefits and combating tax evasion, among others. It is estimated that all these measures could lead to savings of 24 billion euros for the central government's coffers over two years (slightly lower than 2% of Italian GDP).
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