Today is ECB ( European Central Bank) day and the struggles and problems of the Italian economy will be on the mind of its President Mario Draghi each time he thinks of his homeland. Actually as both the ECB and OPEC decamp to Vienna in Austria there can only be one musical accompaniment which is from Ultravox.
The feeling has gone only you and I
It means nothing to me
This means nothing to me
The song itself also became famous for reaching number 2 in the UK charts and being kept off the top spot by Shaddap Your Face as we note that life is often not fair.
The update from earlier this week told us this.
In the first quarter of 2016 the seasonally and calendar adjusted, chained volume measure of Gross Domestic Product (GDP) increased by 0.3 per cent with respect to the fourth quarter of 2015 and by 1.0 per cent in comparison with the first quarter of 2015.
The good news is that this is a much improved performance on the -2.7% of the same quarter in 2013 as we note that annual economic growth did not become positive until the first quarter of 2015 and barely (0.1%) at that. So any growth at all is welcome. However in spite of the chorus of claims from official sources and the media about an Italian economic renaissance I note that annual growth is only 1% and that it has just edged lower from 1.1%.
Whilst Italy has a solid trade position the changes in it will not be welcome as after all its economic growth rate is lower than its main trading partners.
imports (increased) by 1.2 per cent, while exports decreased by 0.4 per cent.
The problem of perspective
If we look back we can again briefly have some good cheer. Back on the 12th of February I pointed out this from Nick Kounis of ABN Amro.
The ‘good’ news is that this is above
#Italy‘s trend growth rate of zero.
However the cheer is bittersweet as we mull numbers like this.
between 2001 and 2013 GDP shrank by 0.2%. (The Economist)
That is hardly an advertisement for Euro area membership! In fact whilst the situation has improved slightly since I posted this back in February there is still a shock effect from this.
Here we get a direct link to the current situation as you see in the better times Italy has raised itself from its economic topor to a growth rate of around 1%. Well right now is a better time for the Euro area and Italy has managed only 1% again. This is in spite of all the promises of changes and reform. It seems to be trapped in its own version of groundhog day.
It is also helpful to consider the individual position because it is significantly worse than the aggregate one. If you look back to the 0.2% decline in 12 years above well the population did this.
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.
I have taken a look at the annual numbers and in the year it adopted the Euro (1999) Italy had a GDP per capita of 26,353 Euro’s and in 2015 it was 25,479 Euro’s or 3.3% lower (2010 prices).
Interesting even the Governor of the Bank of Italy referred to it this week.
that Italy has the potential to recoup the growth gap it has accumulated in the last twenty years.
We know that official denials are troubling to say the least so this from the economy minister Padoan yesterday poses its own question.
PADOAN SAYS ‘NOT WORRIED’ ABOUT ECONOMIC GROWTH IN ITALY ( @advdesk )
Italy was apparently “turning a corner” which would be great news as it seems to have been at that same corner since 1999. Perhaps he has already forgotten that he told us of “extraordinary circumstances” as the Wall Street Journal reported this back on April 8th.
Prime Minister Matteo Renzi’s government sees the Italian economy growing by 1.2% this year and 1.4% in 2017, down from the previous forecasts of 1.6% for both years.
Even manufacturing sentiment appears to be fading according to the Markit Purchasing Manager’s Index.
Italy’s manufacturing sector remained in growth territory mid-way through the second quarter, although the latest respective increases in output and new orders were the slowest in three months…….However, the index sank to its second-lowest level in the past 15 months, as the rates of expansion in output, new orders and employment eased.
This is an ongoing problem as Tuesday’s numbers reminded us.
In April 2016….Unemployed were 2,986 million, +1.7% over the previous month…. unemployment rate was 11.7%, +0.2 percentage points over the previous month……Youth unemployment rate (aged 15-24) was 36.9%, +0.2 percentage points in a month,
This is not the “turning the corner” that economy minister Padoan presumably meant. There was a little solace to be found in the fact that employment rose but unemployment and in particular youth unemployment do not seem to be responding much. Actually the past was worse too as the March unemployment rate was revised up from 11.4% to 11.5%.
The address by Bank of Italy Governor Visco at its Annual Report on Tuesday pointed out this.
The increase of the ratio of debt to GDP, from just under 100 per cent in 2007 to almost 133 per cent last year, is largely a consequence of the crisis..
He also explained why this has happened.
If during that period real GDP growth had been in line with that of the previous decade and the deflator had evolved in keeping with the inflation target for the euro area, the debt burden would have risen by only 3 percentage points,
You may note in their why he is so keen on inflation! Of course workers and consumers in Italy would have the opposite view. Also he was unsure about the plans for debt reduction this year.
The way in which the macroeconomic context will evolve could hinder the achievement of this goal in 2016.
This is a familiar theme for the national debt for Italy which follows part of the Mad Hatters Tea Party.
“The rule is, jam to-morrow and jam yesterday—but never jam to-day.”
“It must come sometimes to ‘jam to-day,’” Alice objected.
“No, it ca’n’t,” said the Queen. “It’s jam every other day: to-day isn’t any otherday, you know”
With Mario Draghi and the ECB such enthusiastic buyers of Italian debt (117.8 billion Euro s so far) the interest cost of this is remarkably low but this hides two problems. Firstly the fact that the capital burden gets ever higher and secondly that politicians will move to fill the “spending gap” created which means that the ECB is as Coldplay put it.
Oh, no, what’s this?
A spider web, and I’m caught in the middle,
So I turned to run,
The thought of all the stupid things I’ve done,
How could it stop QE now?
Apparently they are doing really well and supporting the economy.
Banks are actively seeking to use the abundant liquidity at their disposal, above all by lending to firms in a stronger financial position ( Governor Visco)
You may note that “actively seeking” is different to doing and wonder how strong a firm’s financial position has to be to get bank lending?! Anyway we have a claimed triumph if we switch to economy minister Padoan.
Italy banking system avoided crisis due to Atlante
Ah the bank rescue fund! How is that going? Credit & Macro PM helps us out.
*VENETO BANCA: NO SUFFICIENT INTEREST EMERGED FROM PRE-MARKETING *VENETO BANCA SAYS ATLANTE TO SUB-UNDERWRITE BANK’S SHARE SALE
On the 11th of May I looked at the problems use of Atlante caused for the other Italian banks but a practical example of this can be seen by the share price moves in response to the Veneto Banca news. The Google Translation of Ilsole24ore is clumsy but the gist of it is clear.
Milan Stock Exchange, with the increase of Veneto Banca at great risk, collapsing the Popular Banco Popular which closes at -7.3%, -5.1% and BPM Bper to -5.47%; Unicredit leaves on the ground 4% with Equita who judges the inevitable increase in capital (follow the industry trends).
This tale is a sorry one for a beautiful country with much to commend it. I understand why it wanted to join the Euro as in essence it seems quite happy to bypass its own establishment in the hope of finding more luck in a Europe wide one. Sadly in economic terms that has created its own “lost decade” concept which has lasted all of this century. You are in a bad place when a longer-term perspective puts you in a worse position than Greece as we return to the “girlfriend in a coma” theme.
Perhaps some solace can be found in the size of the shadow economy. A research paper by Friederich Schneider estimated it at 20.8% of GDP in 2014 which was a little higher than the European average of 18.3% and well below Bulgaria at 31%! In January Business Standard reported this.
The Italian black economy accounted for around 270 billion euros in dodged taxes, Eurispes highlighted…..In addition, more than 200 billion euros were generated by the criminal economy, according to Eurispes.
I note the wide variation and cannot avoid the thought that some of what we used to count as the shadow economy ( Prostitution and illegal drugs) are counted these days.
Just after I posted this came this news from @creditmacro.
*ITALY SAID TO CONSIDER TAPPING BANKS AGAIN FOR RESOLUTION FUND *MAY TAP LENDERS TO BRIDGE GAP BTW SALE PRICE/DEBT
Me on Tip TV