We have become familiar with the economic problems which have beset Italy this century. First membership of the Euro was not the economic nirvana promised by some as the economy ony grew by around 1% per annum in what were good years for others. Then not only did the credit crunch hit but it was quickly followed by the Euro area crisis which hit Italy hard in spite of the fact that it did not have the housing boom and bust that affected some of its Euro area colleagues. It did however not miss out on a banking crisis which the Italian establishment ignored for as long as it could and is still doing its best to look away from even now. This all means that the economic output or GDP ( Gross Domestic Product) of Italy is now pretty much the same as it was when Italy joined the Euro. If we move to a measure which looks at the individual experience which is GDP per capita we see that it has fallen by around 5% over that time frame as the same output is divided by a population which has grown.
There is an irony in this as looking forwards Italy has a demographic problem via its ageing population but so far importing a solution to this has led to few if any economic benefits. That may well be why the issue has hit the headlines recently as Italy struggles to deal with the consequences of the humanitarian crisis unfolding in and around the Mediterranean Sea. But we have found oursleves so often looking at an Italian economy which in many ways has lived up or if you prefer down to the description of “Girlfriend in a Coma”.
One thing which has changed in Italy’s favour is the economic outlook for the Euro area itself. It was only last week that the President of the ECB Mario Draghi reminded us of this.
If one looks at the percentage of all sectors in all euro area countries that currently have positive growth, the figure stood at 84% in the first quarter of 2017, well above its historical average of 74%. Around 6.4 million jobs have been created in the euro area since the recovery began…… since January 2015 – that is, following the announcement of the expanded asset purchase programme (APP) – GDP has grown by 3.6% in the euro area.
This was backed up yesterday by the private sector business surveys conducted by Markit.
The rate of expansion in the eurozone manufacturing
sector accelerated to its fastest in over six years in
June, reflecting improved performances across
Germany, France, Italy, the Netherlands, Ireland,
Greece and Austria.
Later they went even further.
At current levels, the PMI is indicative of factory output growing at an annual rate of some 5%, which in turn indicates the goods producing sector will have made a strong positive contribution to second quarter economic growth.
Good news indeed and if we look in more detail at the manufacturing detail for Italy it looks to be sharing some of this.
Italian manufacturers recorded a strong end to the
second quarter, with output growth picking up on
the back of robust export orders……Survey evidence indicated that higher demand from
abroad was a principal driving factor, with new
export orders rising at the fastest pace for over two
years in June.
Ah export-led growth? Economists have had that as a nirvana for years and indeed decades albeit that of course not everyone can have it. But the situation described set a hopeful theme for economic growth in the quarter just past.
The Italian manufacturing sector continued its
recent solid performance into June. At 55.2, the
PMI remained below April’s recent peak (56.2), but
its average over the second quarter as a whole was
the best seen in more than six years.
There were even signs of hope for what has become a perennial Italian problem.
New staff were taken on during the month to help
deal with the additional production requirements
that resulted from new orders. The rate of job
creation remained strong by historical standards
despite easing to the weakest seen since January.
The Unemployment Conundrum
Here we found disappointment as yesterday’s release struck a different beat to the good times message elsewhere.
Unemployed were 2.927 million, +1.5% over the previous month…….. unemployment rate was 11.3%, +0.2
percentage points over the previous month, and inactivity rate was 34.8%, unchanged over April 2017.
Youth unemployment rate (aged 15-24) was 37.0%, +1.8 percentage points over the previous month and
youth unemployment ratio in the same age group was 9.4%, +0.4 percentage points in a month.
The data for May saw a disappointing rise in unemployment and an especially disappointing one in youth unemployment. If these are better times then a grim message is being sent to the youth of Italy with more than one in three out of work and even worse the number rising. With inactivity unchanged this meant that employment also disappointed.
In May 2017, 22.923 million persons were employed, -0.2% over April 2017…….Employment rate was 57.7%, -0.1 percentage points over April 2017, unemployment rate was 11.3%.
The annual data does show a fall of 0.3% in the unemployment rate over the past year but that compares poorly with the 0.9% decline in the Euro area in total. Of the European Union states Italy now has the third worst unemployment rate as Croatia has seen quite an improvement and in fact has one even higher than that in Cyprus. If we move to youth unemployment then frankly it is hard to see how a country with 37% youth unemployment can share the same currency as one with 6.7%, Germany?
There are continuing issues here as I note that there are rumours of some of the problem loans of Monte Paschi being sold. The problem with that is we have been told this so many times before! Then last night we were told this.
italian regional lender banca carige approved a capital increase of 500 million euros and asset sales of 200 million euros ( h/t @lemasebachthani)
This added to this from the end of last month.
DBRS Ratings Limited (DBRS) has today placed the BBB ratings on the obbligazioni bancarie garantite (OBG; the Italian legislative covered bonds) issued under the EUR 5,000,000,000 Banca Carige S.p.A. Covered Bonds Programme (Carige OBG1 or the Programme), guaranteed by Carige Covered Bond S.r.l., Under Review with Negative Implications. There are currently 20 series of Carige OBG1 outstanding under the Programme with a nominal amount of EUR 3.08 billion.
Today has seen an example of never believe anything until it is officially denied in the Financial Times.
One of the eurozone’s senior banking supervisors has defended her institution’s role in handling the failure of two Italian lenders but said her watchdog needed new tools to protect taxpayers better from bank failures.
Let us hope that these are indeed better times for the Italian economy and its people. However whilst the background gives us hope that it will be running with the engine of a Ferrari fears remain if we look at the banks and the employment data that it may instead be using the engine of a Fiat. It is hard not be a little shocked by this from the Telegraph.
Italy’s chronic unemployment problem has been thrown into sharp relief after 85,000 people applied for 30 jobs at a bank – nearly 3,000 candidates for each post.
The 30 junior jobs come with an annual salary of euros 28,000 ($41,000). The work is not glamorous – one duty is feeding cash into machines that can distinguish bank notes that are counterfeit or so worn out they should no longer be in circulation.
The Bank of Italy whittled down the applicants to a short-list of 8,000, all of them first-class graduates with a solid academic record behind them.