Research Dept. News
|
|
|
|
Monthly Report, num 352 - December 2011
|
|
|
European union - Italy
|
|
|
|
|
The Italian economy, in a critical state
|
|
Infected by the Greek crisis, the risk premium for Italy's sovereign debt reaches unsustainable levels and forces political changes.
|
|
The combination of contagion from the Greek crisis, growth deficiencies due to structural competitiveness problems and high levels of debt has been an explosive one for the Italian economy, placing it firmly in the eye of the hurricane of the euro crisis. At the end of October, pressure from the markets and international authorities led the Italian government to ask for supervision of the reforms promised to the European Union, carried out by the EU bodies themselves and the International Monetary Fund. But events took them by surprise.
|
|
|
|
After starting the approval procedure for the reforms requested by the European Union, the Italian prime minister, Silvio Berlusconi, was forced to resign due to political pressure, both internal and external, given his loss of credibility. The president of the central government, Giorgio Napolitano, appointed the former EU commissioner for competition, Mario Monti, as the new prime minister. He designated an essentially technocrat government to get the country out of the financial emergency in which it finds itself, securing parliamentary support for his programme.
|
|
|
|
The new government announced that it would comprehensively apply the reforms approved in mid-November, which included reserve duty for surplus civil servants, receiving 80% of their salary up to a maximum of two years, the liberalization of professional services as well as those offered by local administrations, the disposal of public properties to reduce central government debt and an increase in the retirement age to 67 as from 2026. It also stated that its governing actions would be based on the three pillars of budgetary strictness, economic growth and equity.
|
|
The new government of the euro area's third economy, presided over by Mario Monti, is facing the challenge of simultaneously adjusting its budgets and encouraging economic growth.
|
|
Mario Monti also announced new measures to be specified over the coming weeks. He said that he would consider the return of a tax on housing, would amend employment legislation, boost the employment of women and young people, simplify public administration and combat tax evasion and the black economy.
|
|
We expect Italian GDP to shrink slightly in the second half of 2011, with this continuing in 2012.
|
|
A new adjustment package is required to offset the recently increased financing costs and reverse the rise in public debt. The key lies in securing the confidence of the financial markets to reduce the risk premium and avoid the danger of embarking on a negative spiral. To this end, economic growth also needs to be encouraged. The structural measures are focused on this aim. However, their effect is not short-term and one risk for the new government, which in principle should govern until the end of the legislature in 2013, is the proverbial political instability of Italy, which might raise its head once the corrective decisions have been specified, as we must not forget that the government depends on parliamentary support.
|
|
|
|
And what does this all mean for the economic situation as a whole? The Italian statistics institute did not publish the GDP flash estimate for the third quarter in November, as would have been usual, since the historical series were being revised, so we will have to wait until 21 December for the definitive figures. However, available indicators point to a slight shrinkage due to weak domestic demand, which would mean the first decline in a year and a half. Leading indicators for the fourth quarter also point to a drop in the level of activity.
|
|
|
|
With regard to the outlook for 2012, the constricting effects of the adjustment plan will probably prevail over the potential increase in GDP. For its part, the push provided by the foreign sector will be limited by the little growth predicted for members of the euro area next year. Italy is therefore likely to undergo a slight recession in 2012 as a whole.
|
|
|
You can susbcribe now to be nofified by email every time the Monthly Report is updated in the internet.
|
All documents are in Adobe Acrobat format (PDF).
To view a document in PDF format you need the Adobe Acrobat Reader. If you don’t have it already loaded on your computer, you can donwload it now.
|
|
Direct link to the Research Dept. in your mobile
We'll send you a free SMS with the link
|
