ITALY: Fast-moving political crisis on a stagnation background

After a technical recession in the second half of 2018, the GDP stagnated in the first half of this year and should reach a yearly growth of only 0.1-0.2%. The industrial sector performed poorly, survey-based indicators remained weak, credit growth was moderate, and the retail trade activity was uneven in April-May (Index: -1,8% y/y).

Growth in households’ consumption was weak in the second quarter as in the first one. The business sector confirms the deteriorating trend of confidence in the manufacturing sector, driven by the component “order for intermediate and investment goods”. The unemployment rate (May: 9,7%) dropped to its lowest level since 2012, reaching 28.1% among 15-24-year olds. The data still exceed those of eurozone (7.5% and 15.4%) extensively.

After the excellent post-war period until the 1980s, the per capita income growth has been close to zero over the last 20 years. During the past decade, Italy’s GPD grew by more than 1% only twice (2010, 2016). Weak productivity, high youth unemployment, huge public debt, failing politic leadership, growing regional disparities and strong international concurrence weigh on the economic context. The debt ratio is 132% of GDP and this year, the State must refinance its public debt by 84.5 billion €. The difference in the yield on Italian and German sovereign bonds widened as a sign of increasing investors’ concern over Italy's financial stability.

Disagreements between the government partners of the League-5Stars coalition on many single themes and on action priorities provoked the government crisis. After Prime Minister Conte’s dismissal, President Mattarella could name a technical government and push elections back to February or March 2020. Upon Mattarella, there must be a government in place to finalise the budget, a first draft of which must be submitted to the EU authorities by the end of September.

September 2019