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
#Italy‘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.
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
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