The economy of Italy remains “a girlfriend in a coma”

A long running theme of this blog has been the way that the economy of Italy has struggled in the good times and then shrunk in the bad times. Back on the 12th of February I pointed out this from Nick Kounis of ABN Amro which reflected on the state of play in the Italian economy.

The ‘good’ news is that this is above ‘s trend growth rate of zero.

Well that was true then but sadly there has been a return to trend according to the official data released by Istat this morning.

In the second quarter of 2016 the seasonally and calendar adjusted, chained volume measure of Gross Domestic Product (GDP) resulted unchanged with respect to the first quarter of 2016 and increased by 0.7 per cent in comparison with the second quarter of 2015.

So we note that Italy has returned to what some consider to be its trend growth rate of 0% with a little soupcon of solace coming from the fact that at least it has edged forwards on an annual basis. However it has not turned out to be what some of the Twittersphere and media were at the turn of the year calling the “Renzi Recovery” and was below forecasts of a 0.2% expansion.

As this is the preliminary estimate we do not get a lot of detail but via Google Translate we can glean this.

The quarterly change is the synthesis of an increase in value added in the agriculture and service sectors and a decline in the industry. On the demand side, there is a slight negative contribution of domestic component (gross inventories), offset by a positive contribution from net foreign component.

So if there was some growth we could call it export-led but we instead find ourselves noting that yet again domestic demand has been weak in Italy.

Industrial Production

This does get a mention so let us take a look.

In June 2016 the seasonally adjusted industrial production index decreased by 0.4% compared with the previous month. The percentage change of the average of the last three months with respect to the previous three months was -0.4.

So a gentle decline which is reinforced by the annual comparison.

The calendar adjusted industrial production index decreased by 1.0% compared with June 2015

There is a recessionary flavour to those numbers and if anything that changes to a depressionary feel as we note that the underlying index is at 91.8 if seasonally adjusted and 95.9 if calendar adjusted. The depressionary feel increases if we look back to the 2005 numbers because if my maths is correct the comparison is 83.7 to then. Care is needed on exact precision as elements will have changed and the monthly series can be erratic but we get the general idea.

Of course Italy is far from alone in seeing lower production over such a timescale but it has failed to find growth elsewhere. Bloomberg points out this.

Second-quarter industrial output fell most in almost two years

GDP Trends

As I have discussed above Italy has alternated between stagnation and contraction in the credit crunch era. Thus I think you can guess which is the GDP of Italy in the chart below produced by @fwred.

Actually it Fred is wrong as whilst that chart is indeed worrying for Italy it is not the most worrying one as there are other contenders which push past it. I discussed this issue on the second of June.

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).

We know that the Italian population is expected to rise and if there is more of this reported by the Financial Times then it may rise even more quickly.

Milan’s mayor has warned that the city may have to set up tents to house migrants, as a record number of arrivals turn up in Italy’s second-largest city after being rejected at the French and Swiss borders.

If GDP growth struggles or stagnates then the issue per person or per capita will continue to deteriorate even further below the level at which Italy joined the Euro.


This is an indicator which has been affected by the economic growth problems Italy has seen.

unemployment rate was 11.6%, +0.1 percentage points over the previous month……Unemployed were 2.983 million, +0.9% over the previous month.

As June sees a rise in work for tourism it is not normally a month you would associate with rising unemployment. Also whilst it did improve it is hard not to feel a chill run down ones spine as you read the size of the youth unemployment problem.

Youth unemployment rate (aged 15-24) was 36.5%, -0.3 percentage points over May

The banks of Italy

These have considerable problems as described here by the Governor of the Bank of Italy.

The figure of €360 billion refers to the whole category of “non-performing loans” (NPLs), while “bad loans,” the so-called “sofferenze,” are much lower. Of the €360 billion of gross NPLs outstanding at the end of 2015, bad loans accounted for €210 billion; while the remaining €150 billion loans were classified, alternatively, as “unlikely to be repaid,” past-due, restructured or “in breach of overdraft ceilings.”

If you read the interview with Politico he is trying to tell you that a loan “unlikely to be repaid” is not a bad loan! But the theme here is the way that the banks and the economy are intertwined as the banks are in no shape to provide credit for businesses in the current economic environment and of course the ongoing economic environment weakens the banks. Rinse and repeat. This week has provided more news on this front Italy’s banks. from 24 Ore

Veneto Banca turned a page on its troubled past yesterday when a new controlling shareholder named new management, after a failed €1 billion capital increase was entirely subscribed by the Atlante fund …..Atlante on Monday named Beniamino Anselmi as the bank’s fourth chairman in a year,

Ah fourth chairman in a year! However let us move on from the details of the banking crisis to the impact on the wider economy.

But it will take months, maybe years, to assess the impact caused by the near-collapse of Veneto Banca and the wealthy industrial region’s other cooperative bank, Popolare di Vicenza, on the local economy renowned for its dynamic small- and medium-sized companies.

Veneto Banca’s relationship with its territory has always been extremely close: it’s the bank that supports the local economy……Naturally, the growth of Venetian economy cannot be ascribed to this mechanism alone; nonetheless, it’s been a major component over the past few decades.


The real problem is that this should be one of the better phases for the Italian economy. This is because it should be benefiting from the lower price of crude oil and other commodities. Also the ECB has set a deposit rate of -0.4% and set out on an extraordinary expansion of its balance sheet. As of the start of this month some 155.9 billion of Italian government bonds have been purchased which gives quite a boost to Renzi’s government via its fiscal position. At some shorter maturities Italy is even being paid to borrow and the ten-year yield is below 1.1%. Very valuable when you have a national debt to GDP ratio of around 133% (IMF).

But instead growth has faded and if we look forwards the outlook does not look that bright. Here is the official view.

The composite leading indicator for the Italian economy showed a further decline, albeit to a lesser intensity than the declines of recent months.

If we move to the private-sector Markit PMI we are told this.

The manufacturing economy started the third quarter on a softer footing,……

And something of a curate’s egg for services which starts well.

July was, in general, another positive month for the services economy, with business activity growing steadily

But then we get this.

“However, the survey’s future expectations indicator, which deteriorated further to a 32-month low, sends a warning signal that growth in business activity is set to remain subdued and that hiring may slow.

So I write this sadly as Italy is a lovely country which I like very much but even the IMF does not hold out much hope for a recovery before the 2020s so the theme for economic growth is from Talking Heads.

We’re on a road to nowhere
Come on inside
Takin’ that ride to nowhere
We’ll take that ride



15 thoughts on “The economy of Italy remains “a girlfriend in a coma”

  1. Shaun, do any indicators attempt to measure the black economy in Italy? I do wonder that,if like Greece, large chunks of the economy have stepped of the radar and now work on a cash basis?
    On a separate note, I read that a bank in Germany has moved to -0.4% interest on retail customers who have a balance of over 100,000 euros. This is a very frightening trend indeed and where one goes others will follow. I am beginning to get worried about my future; my interest from savings has dropped to almost nothing, the bonds that my pension is invested in have turned negative – as I have recently retired this is scary stuff! Not surprisingly I am reigning in spending as far as I can. Not what the central bankers expect , as their text books tell them I should spend more, but it is the reality and many friends are doing the same. When will this madness end?

  2. Italy has adverse demographics now, never mind in the future; very high unemployment, probably with issues of hysteresis by now; high debt levels; an inappropriate exchange rate within the Euro; what on earth can you expect?

    The secular growth rate of Italy must be significantly below what it was twenty years ago and yet there is an assumption that this should be the target that policy is aiming for.

    The problem is that nobody can admit this. The demographics were foreseeable many years ago and no one can admit that one of the main problems is the Euro.

    The inability to admit these things mean that the nonsense will go on until it cannot go on any longer and any talk of an appropriate policy response is simply pointless.

    • Hi Bob J

      Rather than address the situation the Ministry of Finance issued a statement passing the buck. Via Google Translate

      “The Italian economy in the international context
      The signs of a slowing global economy were accumulating for some time. In recent months they have emerged or have been strengthened by geopolitical risk factors that have a negative impact on Italian growth (including the threat of terrorism, migrant crisis, Brexit). The propensity to protectionism that seems to resurface in some contexts worries policy makers around the world. In a G7 meeting in May, the IMF had signaled a worrying slowdown in international trade, and had warned of a generalized reduction in world trade.
      The effects of these phenomena on Italy’s growth prospects were known for some time, then the figure today is not a surprise.”

      Shame they did not tell those who were forecasting 0.2%..

      • “The signs of a slowing global economy were accumulating for some time”

        .Funny that, cos my model says slightly improved (i.e. accelerating) global growth in H2 this year with strengthening global growth next year. Expect places like Brazil, India , Indonesia and Russia to do quite well growth wise whilst the US will do even better to year end 2016 as I predicted last winter. I expect further US rate rise before year end as wages are threatening to become inflationary. I do wonder where the doom and gloom merchants get their numbers from as they are so consistently wrong.

        If you prefer doom and gloom you’ll have to look carefully but there are places like Chile, Malaysia and the Philippines and of course Italy and Greece.

  3. Hi Shaun
    ‘Itescita’ must be on the cards, at least from the Euro.
    The item about Milan reminds me of the sections in the motorway service stations around Milan, Turin and Genoa to maps and directions to the UK. Now that schengen has collapsed in everything but name, they are of little use in shifting the immigration problem.
    Italian ‘black’ economy is alive and kicking which helps explain the continuation of apparent ‘wealth’ in the north, even whilst the state sinks into the mire.
    By the way , re PP, most conversations were apparently about how to reduce Juve’s tax bill. So only £64m of the £89m was officially their fee; the rest was ‘redistributed’. Not only the money to Raiola went to Monaco. Such is business in Italy.

    • Hi JW

      The FT article did not surprise me with the mention of the Swiss sending migrants back but it did a little with France doing so. Not much sign of Europe being “all in it together” to coin a phrase there.

      I am intrigued by the transfer monies which come on top of the vast sums. I am not just thinking of Paul Pogba and John Stones but the myriad of other transfers of the order of £30 million. I remember reading a while ago that a lot of the money was borrowed and sometimes not paid. It really is a murky world even murkier than that green diving pool in Rio.

      • Hi Shaun
        State of emergency in France has resulted in borders applying pre-schengen controls. Doubt they will return to schengen anytime soon , if ever. Passports/ID cards even on internal French flights now.

  4. Italy’s membership of the euro looks unsustainable. A lira would have devalued and inflated – reducing the debt to GDP ratio. It must be nice for the insiders who issue loans to take kickbacks on crony loans and then let Euro area taxpayers cover the losses.

    Someone, somewhere has the chance, Soros style, to bet against Euro integrity. If they’re smart they will do it whilst geographically located and regulated outside the EU. Just look at what the EU and Juncker’s Luxembourg do to whistleblowers. Shoot the messenger and ignore Juncker’s breaches of the rules.

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