Research Dept. News
|
|
|
|
Monthly Report, num 354 - February 2012
|
|
|
European union - Italy
|
|
|
|
|
Readjusting the Italian economy
|
|
Italy enters recession in the second half of 2011 and looks likely to shrink in 2012.
|
|
After a quarter-on-quarter drop in GDP of 0.2% in the third quarter, although the official figures are still not available, a higher drop will probably be posted in the fourth quarter, so that the Italian economy will have returned to recession without having returned to its level prior to the Great Recession of 2008-2009. This seems to be suggested by indicators, such as the 4.1% year-on-year fall in industrial production in November and 8.1% for construction in October.
|
|
|
|
This trend is due to the effect of restrictive economic policy measures adopted last year and also the slowdown in the world economy, apart from problems of competitiveness. The foreign sector's contribution to growth, although positive, has been insufficient.
|
|
|
|
Judging by leading indicators and by the expected results of the austerity measures currently underway, with rises in taxes and cuts in public spending, the outlook for 2012 is for the recession to continue, at least in the first few quarters, so we have forecast the change in GDP for the whole of the year at -1.5%. The package of structural reforms called «Cresci Italia», which is discussed in more detail below, will have a positive effect on the enlargement of potential growth but their impact will be particularly medium and long-term.
|
|
Hikes in indirect taxation will make it difficult for Italian inflation to be redirected this year, ending 2011 at 3.3%.
|
|
Household consumption is showing signs of weakness due to wages' loss of purchasing power, to the drop in employment and the rise in unemployment over the last few months, as well as rising uncertainty. The rate of change in consumer prices ended with a year-on-year increase of 3.3% in December, due partly to the hike in indirect taxes. This will continue in 2012, making it difficult to redirect inflation. We therefore predict that, this year, household consumption will continue to fall, whose level of confidence has dropped to its lowest level since at least the mid-1970s. Investment is also likely to decrease this year, given the low utilization of production capacity on the one hand and the persistence of the real estate crisis on the other.
|
|
The «Cresci Italia» decree boosts competition and infrastructures to regain lost competitiveness.
|
|
Although the public sector deficit fell by 5.5 billion euros in 2011 compared with the previous year, which was more than expected, at the end of the second week in January the agency Standard & Poor's downgraded Italian sovereign debt to BBB+, while Fitch kept it at A+ but with a negative outlook, and Moody's at A2; all these ratings are investment grade, unlike Greece, Portugal and Ireland. However, its risk premium stood at around 485 basis points, slightly below the record of 550 posted in the second week of November.
|
|
|
|
It is very important for confidence to recover and the risk premium to fall for the sustainability of the country's national accounts. Within this context, on 20 January the government presided over by Mario Monti approved a new package of measures, focusing this time on liberalizing several sectors such as energy, transport, finance and insurance, local public services and professional services, including pharmacies and notaries. This package also includes measures to boost infrastructures and construction. Moreover, to tackle high youth unemployment, those aged under 35 can set up a new «simplified limited company» with capital as little as one euro. The last two years of university training can also be taken in combination with work experience.
|
|
The Italian government is preparing its labour reform.
|
|
These measures have led to a wave of protests by the groups affected but the government is determined to apply them, although there might be amendments to some measures during the two month period to validate them in parliament. With regard to the structural reform of the labour market, the government is talking to social agents but plans to go ahead with the reform in a few weeks.
|
|
|
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
|
