Research Dept. News
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Monthly Report, num 359 - July-August 2012
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European union - Italy
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Exports slow up the drop in activity in Italy
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Detailed figures from Italy's national accounts system for the first quarter confirmed a quarter-on-quarter drop of 0.8%, although the year-on-year rate of change was revised downwards by one tenth of a percentage point to -1.4%. Domestic demand contributed -1.7 percentage points to the quarter-on-quarter change in GDP. Within this, investment was responsible for -0.7 points and household consumption -0.6 points. However, public consumption contributed 0.1 points. Nevertheless, the greatest contribution came from foreign demand, totalling 0.9 points.
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Economic indicators are worse and we revise slightly downwards our forecast for Italian GDP in 2012 to -1.8%.
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Over the last few months there has been a generalized deterioration in the economic indicators. The economic climate worsened in May, down to its lowest level since April 2009. The recession is therefore expected to continue. Given this situation, we have revised our forecast slightly downwards for the change in GDP for 2012, to -1.8%.
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With regard to the trend in domestic demand, household consumption continues to appear weak. Automobile sales fell by 14.3% in May compared with the same month the year before. Moreover, consumer confidence continued to fall in June, setting a new record low for the last few decades. This deviation can be explained by concerns regarding how the labour market is performing. In April, employment fell by 0.1% compared with the previous month, seasonally adjusted, and the unemployment rate continued to rise to 10.2%. In line with this, wages paid per hour worked are tending to slow up and their year-on-year change stood at 1.4% in April. The outlook for investment isn't favourable in the short term either, as company confidence is going through a slump.
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Italy's sub-balance of goods posts a surplus in April.
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Within this environment, the foreign sector is taking on the role of saviour but structural problems for the Italian economy's competitiveness are limiting its capacity to boost the economy. In April, the deficit of the current account balance of payments totalled 1.14 billion euros, down 76.5% compared to twelve months before. It should be noted that the sub-balance of goods posted a surplus of 596 million euros, compared with a deficit of 2,066 in April 2011.
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On the other hand, towards the middle of June the yield on ten-year government bonds returned to above 6% and the spread with German bonds increased, due to contagion from Greece and Spain. However, EU measures reduced tension and, by the end of the fourth week of June, the risk premium stood at 411 basis points, far from the record of 550 reached in November 2011. It's important for public debt yield not to rocket as the burden due to interest payments could be unsustainable.
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New package of economic policy measures to achieve the budget targets and bring about growth.
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To help achieve the budget targets and boost economic growth, with the aim of gaining market confidence, the government presided over by Mario Monti approved a new package of measures on 15 June. The following were among their decisions: company and real estate privatization, tax deductions for firms that require highly qualified workers, facilities to boost construction, relaxation of the law on creditors' meetings, facilities to finance infrastructures, reinforcement of the energy sector, greater transparency of public expenditure and making judicial procedures more agile.
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