It is time for us to take another trip to the beautiful country that is Italy and touch base on economic developments there. The mainstream view is that it is on the edge of an economic boost and that would be welcome indeed as Italy has struggled for quite some time and in fact throughout its period of Euro area membership. The number below was one of the reasons why the former editor of the Economist magazine Bill Emmott described it as like a “girlfriend in a coma”.
between 2001 and 2013 GDP shrank by 0.2%. (The Economist)
Back on the 18th of May last year I took a step back and decided to look beneath the aggregate position described there to discover what the experience of the average or ordinary Italian would be and the numbers were even more shocking.
That statistic gets even worse when you allow for the fact that the Italian population was expanding over that period by around 7% so per person the situation was even worse.
We have discussed on here before the issue of how you define a depression well I would say that the GDP per capita numbers for Italy indicate that it has been in one for this century and hence its period of Euro membership. Putting it another way it has done worse than Greece.
Today’s GDP data
Back on the 24th of November last year I expressed my fears about what was taking place in terms of GDP growth and the mathematical sequence which was building up.
However there is a rather ominous pattern for 2015 so far as it has gone 0.4%,0.3% and now 0.2% which is a clear trend. Of course there is spurious accuracy at play but it is hard not to at least wonder about it.
Spurious accuracy or not it would appear that the trend is still your if not Italy’s friend.
In the fourth quarter of 2015 the seasonally and calendar adjusted, chained volume measure of Gross Domestic Product (GDP) increased by 0.1 per cent compared with the third quarter of 2015 and by 1.0 per cent in comparison with the fourth quarter of 2014.
Let us start with what appears at first to be good news. From Nick Kounis at ABN Amro.
The ‘good’ news is that this is above
#Italy‘s trend growth rate of zero
However when you think about it perhaps it is not such good news. Also the growth such as it is has relied on external demand which is good but of course the troubled start to 2016 means that it is not going to be so easy to repeat.
If you would like some perspective then at 2010 prices the earliest quarter in todays report is the first in 2011 when GDP was 405.5 billion Euro’s as opposed to the 387.2 billion Euro’s of the quarter just gone.
Other hard data
There had been a warning shot fired by the industrial production data which was released on Wednesday.
In December 2015 the seasonally adjusted industrial production index decreased by 0.7% compared with the previous month. The percentage change of the average of the last three months with respect to the previous three months was -0.1.
That meant it was 1% below where it had been in December 2014. This seems to have been a general issue in December where we have now seen quite a list of countries producing poor industrial production figures. The adjusted series seems to be in a bit of disarray with the seasonal one at 91.4 and the calendar adjusted one at 79.7 compared to the unadjusted 81.8 but all are well below the 2010 benchmark.
This added to disappointing labour market data.
In December 2015, 22,470 million persons were employed, -0.1% with respect to November 2015. Unemployed were 2,898 million, +0.6% over the previous month.
Previously the situation has been improving but December saw the unemployment rate edge up to 11.4%.
Retail sales nudged 0.3% higher in November but there was much less cheer in the underlying numbers.
The average of the last three months remained unchanged with respect of the previous three months.
The unadjusted index decreased by 0.1% with respect to November 2014.
Putting it another way retail sales are at 95.4 compared to 2010 which again takes us back to the theme of an economic depression.
The promise of recovery
The mainstream media has been pushing this line for a while that the reforms of Prime Minister Renzi will see an economic boost. Some of this was captured by the Markit purchasing managers indices as shown below for December manufacturing.
December’s 57- month high of 55.6,
The catch is of course that we now know the actual data was for a contraction meaning that it is hard to know what to make of the January figures.
The first batch of PMI data for 2016 showed a cooling in the rate of growth in the manufacturing sector
The same was true of the service sector which was supposed to be booming in December except the actual GDP figures missed it. Retail sales forecasts are less optimistic.
The headline seasonally adjusted Markit Italy Retail PMI® fell to 47.9 in January from December’s 50.2, signalling a drop in sales for the third time in the past four months.
The official monthly report for January told us this.
The economic outlook for households and enterprises appears to evolve in different ways; disposable income is expected to rise for the former. The growth in economic activity does not yet entail an overall improvement in production among sectors. The economic leading indicator, however, remains positive in November.
There is a genuine question as to why the improvement in real wages and disposable income has not led to a better result for consumption and domestic demand.
This is of course headed by an Italian Mario Draghi and a highly expansionary policy does seem to suit Italy. Although if course it relies on the fact you have to believe that monetary policy has traction. Added to that the falls in the Euro exchange rate have been replaced by rises leaving it not far off (-1%) where it was a year ago. As of the end of January the ECB had purchased some 87.8 billion Euros of Italian debt meaning that it is helping the fiscal deficit via keeping funding costs low. Frankly in the circumstances ultra-low.
So if the pedal is not already to the metal we have plenty of promises from Mario that he will put it there next month. Of course that leaves us with the troubling view that Italian economic growth should be accelerating not braking.
Back on the 21st of January I pointed out that the Italian banks were in trouble and this meant that they would be of limited help in improving the economy. Well today the Economist magazine has caught up.
No country is more impaled on this dilemma than Italy. The gross value of non-performing loans makes up a whopping 18% of their total lending; retail investors own some €200 billion of bank bonds, equivalent to 12% of GDP. A government plan to buy bad debts from the banks at close to face value would fall foul of European rules against “state aid”. But selling the loans at a significant discount would force Italian banks to recognise losses, some of which could be borne by retail investors.
Let me finish with some cheer which is that Italy has a large black or undeclared economy although of course things like drugs and prostitution are counted these days. The moves to ban the 500 Euro note will perhaps be of interest to organised crime like the Mafia but I would guess that they would be a few steps ahead of it. But the theme of being like a girlfriend in a coma continues and some of the contradictions are welcome but not all as identified by the Kooks.
But uh oh, I love her because she moves in her own way