ITALY: Recession After 3 Years of Economic Growth

The GDP grew by 0.9% in 2018 but recorded a consecutive contraction in the last two quarters (-0.1% q/q) due to a fall in foreign and in domestic demands. Foreign trade surplus decreased by 16% y/y. The manufacturing activity growth slowed to 1.7% from 3.1% in 2017. Fix gross
investments grew by 3,3% in 2018 but with a slowing dynamic. In February, the industrial PMI fell to 47,7 points remaining in the contraction zone. Economic and political uncertainty and, to a lower extent, international trade tensions weigh on firms’ demand expectations and the
general economic conditions.

Companies contemplate a slowdown in investment growth in 2019. In the construction sector, the decrease of investment in public works (-3.2%) continued in 2018. Demand for bank loans required by non-financial corporations continued to rise at a moderate pace thanks to low interest rates. A new recession could cause new borrowers’ defaults with further problems for the banks’ quality of credits. In the end 2018, temporary factors such as the stop in sales in the automotive sector caused by the introduction of new emissions regulations, further hindered households’ spending, which is not encouraged by the labour market situation (unemployment rate 10.5%) nor by the income development.

Since the introduction of euro currency, the real per-capita income has decreased by 5% compared to an increase of +23% in Germany and +15% in the Eurozone. At present, the government gives priority to redistribution and in April a basic income (780 EUR per capita, at top) was introduced conditioned to the acceptance of eventual job offers. However, the major challenges for the economic policy remain high tax burden, excessive bureaucracy, low productivity (also compared to unit labour costs) and insufficient job creation.

April 2019