The economic problem that is Italy continues

Today brings the economic situation in Italy into focus as it readies itself for a ratings review. Friday the 13th may not be the most auspicious of days for that! However I should be more precise in my language as the Italian government will know as they get told 24 hours before. So as we live in a world where things leak, today will be a day where some traders will be more equal than others so take care. But there are plenty of worries around due to the fact that one of the central themes of this website which is Italy’s inability to maintain any solid rate of economic growth continues. To be more specific even in the good times it struggled to have GDP (Gross Domestic Product) growth of more than 1% per annum. This it was particularly ill-equipped to deal with the credit crunch and was left with weak economic foundations such as its banks.

Some better news

This was to be found in yesterday’s production numbers.

In November 2016 the seasonally adjusted industrial production index increased 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 +0.9.

The calendar adjusted industrial production index increased by 3.2% compared with November 2015

As you can see these were good numbers although not so good for economists whose expectations so often misfire. As the Financial Times pointed out there was a positive change in response to this.

Economists at Barclays have doubled their projected fourth quarter growth forecast for the eurozone’s third largest economy to…0.2 per cent…….. GDP growth is now expected to clock in at 0.2 per cent from an earlier projection of 0.1 per cent in the three months to December,

If you really want to big this up then you can say that the expected growth rate has doubled! Of course the issue is that it is so low and that even this would be a reduction on the 0.3% achieved in the third quarter of 2016. For a little more perspective imagine the outcry if a post EU vote UK had grown like that, twitter would have been broken.

The Labour Market

The data here is far from positive however as on Monday we were told this.

In November 2016, 22.775 million persons were employed, +0.1% compared with October. Unemployed were 3.089 million, +1.9% over the previous month……..unemployment rate was 11.9%, +0.2 percentage points in a month and inactivity rate was 34.8%, -0.2 percentage points over the previous month.

This is the Italian equivalent of a Achilles Heel and separates it from the general Euro area performance where the unemployment rate has been falling and is now at 9.8%. In fact it was one of only four European Union states to see an annual rise in its unemployment rate and we should make a mental note that Cyprus was another as this does not coincide with the message that the bailout was a triumph. Returning to Italy there was more bad news in the detail of the numbers.

Youth unemployment rate (aged 15-24) was 39.4%, +1.8 percentage points over October and youth unemployment ratio in the same age group was 10.6%, +0.7 percentage points in a month.

I hope these sort of numbers do not lose their ability to shock us and also note that time matters here as Italy is in danger of seeing a lost generation as well as a lost decade. So many must have no experience of what it is like to work.

Consumer Inflation

The last week or so has seen quite a few nations recording a pick-up in inflation in December so we see yet another area where Italy is different.

In December 2016, according to preliminary estimates, the Italian harmonized index of consumer prices (HICP) increased by 0.4% with respect to the previous month and by 0.5% with respect to December 2015 (from +0.1% in November 2016).

Yes there was a rise but to a much lower level and in terms of Italy’s own CPI prices fell in 2016 overall albeit by only 0.1%. So as we observe low rates of economic growth we see that Italy is in fact quite near to deflation which for me would be signaled by falling output and prices.

Italian consumers are unlikely to be keen on the rising inflation level such as it is because it was mostly fuel and food driven.

House Prices

Here is another difference as you might think that an official interest-rate of -0.4% and 1.5 trillion Euros or so of bond purchases in the Euro area would lead to house price rises. That is of course true in quite a few places but not in Italy.

In the third quarter of 2016: – the House Price Index (see Italian IPAB) increased by 0.1% compared to the previous quarter and decreased by 0.9% in comparison to the same quarter of the previous year (slightly down from -0.8 registered in the second quarter of 2016);

So not much action at all and in fact Italy has been seeing house price disinflation. The official index has done this after being set at 100 in 2010. It has gone 102.4 (2013), 100.1 (2014), 98.6 (2015) and 97.4 in the third quarter of last year.

So good for first time buyers and in many ways I think more welcome than the UK situation but surely not what the Italian President of the ECB Mario Draghi had planned.

The banks

This is a regular theme as well and I covered the Monte Paschi bailout on the 30th of December and apart from a debate as to how bad the bad loans are there is little change here. Yes the same bad loans which we were told were such great value only a couple of months or so ago. Also Unicredit is continuing with its 13 billion Euro capital raise confirming the view I expressed on Sky Business News just over 5 years ago. Eeek! Where did the time go?

We do have some news on this subject and it does raise kind of a wry smile.

UBI Banca, Italy’s fifth-largest bank by assets, has been cleared to buy for €1 the rump of three lenders rescued by the state in the latest step in Italian bank consolidation. UBI made the offer for Marche, Etruria and Carichieti to the state bank resolution fund on the condition the so-called good banks are stripped of €2.2bn in bad loans. ( Financial Times).

Oh and 1 Euro may turn out to be very expensive if you read my 30th of December post and the relationship of Finance Minister Padoan with reality and honesty.

Pier Carlo Padoan, finance minister, told lawmakers in Rome he was “convinced” the deal was good for the bank in question and confidence in the Italian banking system.

The discussion these days turns a lot to those bad loan ratios and how much of them have been dealt with. As ever there appears to be some slip-sliding-away going on.


The simplest way of looking at Italian economic performance this century is to look at economic growth and then growth per head. Sadly we see that GDP of 1555.5 billion Euros in 2000 ( 2010 prices) was replaced by a lower 1553.9 billion in Euros in 2015. But the per head or per capita performance was much worse as the population rose from 57.46 million in 2000 to 60.66 million at the end of 2015.

It is that economic reality which has weakened the banks (albeit with not a little corruption thrown in) and also led to the problems with the national debt about which we have also learned more today.

Italian General Government Debt (EUR) Nov: 2229.4B (prev 2223.8B) ( h/t @LiveSquawk )

The bond vigilante wolf is being kept from the door by the amount of bond purchases being made by the ECB.

What hope is there? Perhaps that the unofficial or unregulated economy is larger than we think. Let us hope so as Italy is a lovely country. But in contrast to Germany which I analysed on Monday the level of the Euro looks too high for Italy.





28 thoughts on “The economic problem that is Italy continues

  1. damm, so much for my plan to increase GDP by immigration – didn’t work for Italy

    will it work for us?

    I’ll let the reader guess


    PS: for any nut jobs out there who are convinced that more people means more wealth I hope you will join me in allowing India’s entire population to have UK Euro passports ( we’re still in it ) .
    the increase of over a billion people will boost all of the EU countries as they move over to Europe.

    free open borders are wonderful!!

    whats not to love ?

    • Hi Forbin

      You make an interesting point. Italy has followed the mainstream mantra for dealing with upcoming demographic problems and boosted its population via immigration. It is for those who claim such things are a net gain to explain why the economy has not grown at all and has shrunk on a per head basis.

      • Aside from the idleness issue, there is the key difference between GDP growth and productivity growth (output per working head). The UK has seen GDP growth, but mostly from immigration, while productivity has fallen. This is due in most part to the type of work available to immigrants (hard to increase spud-pulling productivity) and the difficulties of raising productivity of an individual (language barriers, using equipment etc.). It is also counterproductive to use extra bodies in place of investment in kit or skills, but when it is a question of bodies and the whole financial system emphasises piles of bricks over skills, then there will be less investment in skills.

        The problem is not immigration, whatever the Kippers might think, since the relatively low level of unemployment means there is work to be done.

    • “…will it work for us?”

      Already has been:



      UK GDP up 7% from 2012 to end 2015 whilst net aggregate immigration was up 860000 in the same period, which, expressed as a fraction of the workforce of 33.67 million in 2015 is approximately 2.7%.

      Just thought I’d catch you up and introduce you to the world of evidence, facts and reality as opposed to conjecture and hearsay Forbin…..

      • ah support for my case for allowing all of India to have UK EU passports



        PS we need one of those new Smart Meters for GDP , save us having to guess ……….. ( imputed sex and drugs for a start)

      • Have you considered the impact of debt growth to buy the increase in GDP.? Evidence facts and reality ? Sorry Forbin I know you Know this.

        • You have failed to grasp that my reply to Forbin was in relation to his ridicule of immigration helping to achieve GDP growth.

          So, faced with facts, evidence and reality you cannot get past you decide to move the goal posts and change the argument to one of debt growth vs GDP growth.

          The question of debt growth is a separate one to immigration and I would say that debt is growing almost exponentially to achieve linear GDP expansion – an unsustainable position, but please explain to me the link between UK debt growth and immigration and show me how much you really Know. I am always willing to learn as I don’t Know everything as some seem to believe they do.

        • I’m still waiting for your evidence from which you may adduce facts to demonstrate your so far unproven assertion that debt growth is the main if not sole cause of recent GDP growth to the negation of any positive effect on GDP growth from immigration.

          Can you supply that evidence and explain it to me?

        • So that would be a “no” then! You are unable to provide any evidence from which facts may be derived to support your allegation that GDP growth is solely due to debt growth and could have no or a very limited link to immigration.

          I had thought I may learn something from you or you from me but clearly you have no interest in self improvement. Thank you for your ill informed and unsupported allegation and wasting my time!

          Seeing the lack of intellectual depth you have demonstrated since your first and only comment I am not surprised you state “Evidence facts and reality ?” Clearly you are questioning what these words are as you have never heard of them before!!!

  2. on a more serious note the Italian government must do something about youth unemployment

    they’re stacking up trouble for the future

    and also loss of income tax , business , etc,etc

    a nation of unemployed cannot pay back their debt


      • I am not an expert on the Italian economy so others better informed may wish to post their ideas

        but if youth unemployment – why we think a 24 year old is youth I dont know , politics I guess., if nothing is done I think thats a waste of resource and will allow unsavory politicians a level to gain power


        PS or maybe they will not revolt as they are too busy playing with their ipads and smart phones , gotta love technology !

        • btw it was an observation of what is

          I’m not so sure the Italian government is so concerned – always the answer is growth………….

          but that has not materialized and given the discussions on this web site about technology the jobs may disappear quicker than can be created , even for the UK and USA ( and China) for that matter

          training schemes , university until 25 ?

          someone who knows may point out they are doing this type of thing already


    • It is also a real tragedy that so many young people don’t have a job. It must be utterly demoralising and depressing and the sad thing is that it would never have happened had these countries not joined the Euro.
      There is an almost revolutionary level of youth unemployment across the southern belt of the EU, while there is almost no unemployment in the northern half. These economies aren’t really suited to be joined together.
      I suspect that the only solution is
      1. Quit the Euro or
      2. Offer massive subsidies from the north to the south
      I am confident that neither will happen as politics will continue to trump economics.

  3. Hi Shaun great post.
    The two fundamental issues are greed and debt in capitalist economies ,a quarter of a century after its supposed victory over communism which failed for different reasons.
    Capitalism is in crisis
    In order for a society to function money needs to circulate round the system therefore we need a much more equal society.The type of society which we had from 1945-1979
    Debt must be reduced yet we have a monetary system which requires debt expansion.
    Corbyn ‘s much criticised salary cap idea has some merit ?perhaps in the form of highest paid cannot be paid more than 40 times lowest paid employee.obscene salaries such as those being paid to footballers need to be taxed appropriately 80% over £1 per annum like we had in the 70’s
    The problem is Companys can never make enough profit so they relocated to cheaper economies this meant skilled jobs were exported and wages at home driven down.
    Consumers want cheaper goods which supports this off shoring of jobs.
    The levels of youth unemployment in Italy Spain and Greece will inevitably lead to revolution.
    The banking industry would collapse without Government support as would the Bond market without the creation of trillions by QE as you point out in the comment section Shaun.
    The only question to be answered in my mind is will the system collapse or will the evil politicians start a war with Russia to prevent the inevitable.
    I think we are in the greatest danger we have been since 1945 and I it’s not Putin I’m worried about.

      • Hi Private Fraser and thank you

        The greed issue you highlight has been demonstrated by the world of football yet again this week. We have seen Dimitri Payet refuse to play for West Ham and more painfully for me personally Diego Costa seemingly looking at China and dropped by Chelsea. Both are looking at even more than their current enormous deals.

        I agree that there was a point to the argument made by Jeremy Corbyn or to be more precise what I thinking he was making as it seemed to change! Some rewards are out of kilter with the job. I have argued in the past that somehow shareholders need to get some control of quoted companies back from the directors. One of the worst examples was Fred the Shred at RBS who ran it as a personal fiefdom. That’s okay if it is your company but now when others own it.

  4. It is a fundamental problem with the Italians (and southern Europeans generally) – idleness. Dan Snow flagged up the other day that the Cathedral in Milan took several hundred years – yet they managed to build La Scala in the same city during the reign of Empress Maria Theresa – who was of course monarch of the Austrians running the place at the time. Devaluation won’t help – it just impoverishes and is another excuse to use the Spanish expression ‘manyana’.

    “Italy is a mere geographical expression” – Clemens Metternich

    • “This was partly due to lack of money and ideas. Another setback was that while the many foreign influences were beneficial, they also caused problems as they not always agreed on what they should actually build. ”

      sounds like the EU project problem to me


      • I was there about 15 years ago – the centre of Milan (mostly built under Spanish and Austrian rule) is very nice, but the rest of Milan is a dump. I am beginning to think it is something in the DNA – whether the people went along the Celtic (Italy, Spain, caostal Franmce, Ireland Uk) or Germanic Danube route, the idle stayed behind in southern Europe, while the enterprising went into northern Europe.

  5. Driving in Italy is instructive. Punitive m.way tolls, petrol as much as 1.72 EUR. Drivers unconsiderate and dangerous. Best fill up before Italy. Those costs will discourage young Italians from commuting to a job

  6. “What hope is there? Perhaps that the unofficial or unregulated economy is larger than we think. Let us hope so as Italy is a lovely country. But in contrast to Germany which I analysed on Monday the level of the Euro looks too high for Italy.”

    – Unofficial and illegal economy are a huge problem, not only an economic one, but is still ongoing a cultural and administrative effort to lessen the problems and raise the tax collection. Linked to this process is the real estate price fall, due not only to the economic crisis but mainly to the more stringent rules on transactions aimed to fight the amounts paid but not declared…the effect on house prices is still negative but the market now seem stabilized.

    – In my opinion the level of the Euro is not a problem for the italian private exporters, just look the positive italian balance of payments. The problems still resides in the cultural differences within italian region and the “bad balanced” public spending supported by high taxation…on those doing their fiscal duty.

    • Thank you for an insightful contribution Mario. Your post illuminates the negative composition of the other contributors here.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.