Research Dept. News
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Monthly Report, num 338 - September 2010
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European Union - Italy
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Italy consolidates its recovery
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The recovery of the Italian economy continued at a good pace during the second quarter of 2010, with 0.4% growth in GDP quarter-on-quarter. This figure raises the year-on-year change to 1.1%, the highest increase since 2007. All the evidence seems to suggest that investment and foreign demand held the reigns of the Italian economy in this period, reinforced by a positive contribution from stocks. On the other hand, it is estimated that consumption, both public and private, will remain weak for another quarter.
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The Italian economy grows by 0.4% quarter-on-quarter in the second quarter.
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Supply indicators show an increase in industrial production of 7.6% year-on-year in the second quarter of 2010. This is far behind the levels reached in the period before the recession, keeping industrial capacity utilization low. In spite of this, the end of fiscal incentives in June for replacing obsolete machinery will have brought forward decisions to invest on the part of industry, especially within the current situation of recovery.
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Foreign demand improves in this period...
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Concerning demand, of note is the upswing in exports that, during the spring quarter, grew by 18.4% compared with the previous year. The rise in imports, 26.7% in the same period, placed the trade deficit at 5.848 billion euros. This figure was 30.4% lower than that recorded the previous quarter, contributing positively to growth in this period.
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Weak consumption may slow up Italy's recovery in the short term. Retail sales continued to fall in April and May, with year-on-year decreases of 0.7% and 1.2% respectively. Moreover, the uncertain performance of the job market and the rise in consumer prices, in July standing at 1.7%, once again stopped consumer confidence from improving this month. With regard to public consumption, the approval of the austerity plan for the next two years, calculated at 25 billion euros, does not suggest any positive contribution from this area in the coming quarters.
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All this occurred within a context of political instability due to the governing party losing its support in parliament. This could lead to early elections; a scenario, however, that is not thought to be very likely.
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