Italy looks set for another economic recession sadly

A feature of the last year or so has been something of an economic car crash unfolding in Italy and we have received two further perspectives on that subject this morning. Sadly neither is an April Fool although in these times they have become ever harder to spot. According to Markit times not only remain hard but have deteriorated in the manufacturing sector.

Manufacturing business conditions in Italy continued
to worsen in March as a sharp reduction in new orders
led to a further decline in output. Production fell for the
eighth consecutive month, whilst new orders contracted
at the fastest rate in nearly six years. Meanwhile, business
confidence dipped slightly from February, but was
nonetheless positive.

The reported fall in new orders was led from abroad.

Additionally, new business from abroad fell in March
at a rate just shy of December 2018’s near six-and-a-half year record.

This meant that the reading was as follows.

At 47.4, the reading was down from 47.7 in February
and signalled the sharpest monthly decline in the health of
the sector since May 2013.

Also the optimism reported frankly seems at odds with reality.

Optimism regarding the year ahead outlook for output was
sustained in March, but concerns over further contractions
in customer demand and a continuation of negative market
trends meant sentiment weakened from February.

Markit itself does not seem to hold out much hope for a quick rebound.

All in all, Italian manufacturing output looks set to decline
further in Q2, especially when looking at slowdowns in key
sources of external demand in neighbouring European


The situation here posed a question too this morning.

In February 2019, the number of employed people moderately declined compared with January (-0.1%,
-14 thousand); the employment rate decreased to 58.6% (-0.1 percentage points). The fall of employment
involved mainly people aged 35-49 years (-74 thousand), while people aged over 50 continued to go up
(+51 thousand).

There is an interesting age shift in the pattern which we are seeing across a wide range of countries. There are two main drivers here which are interrelated. The first is the demographic of an ageing population. The second is the rises in official retirement ages and in Italy perhaps the ongoing economic troubles leading to actual retirements being postponed.

If the manufacturing PMI is any guide the employment falls continued in March too.

As a result of the setbacks in output and new work,
employment in Italy’s manufacturing sector declined in

Also as IPE pointed out last September that the retirement situation in Italy is typically complex.

By comparison, the statutory retirement age in 2019 will be 67. This keeps rising, as planned by law, to keep up with demographic projections. In reality, however, people on average retire at about the age of 62. This is the result of the complicated legislative framework, which effectively means every worker’s personal circumstances can contribute to bringing his retirement age forward.

Also the current government has plans to reduce the official retirement age.

Returning to the employment data we see that the situation is turning as previously there had been rises.

Employment rose by 0.5% (+113 thousand) compared with February 2018. The increase concerned men
and women, involving people aged 25-34 years (+21 thousand) and over 50 (+316 thousand).


There was something of a double whammy in the labour market in February.

In February, the number of unemployed persons rose by 1.2% (+34 thousand); the increase involved men
and women and persons aged over 35. The unemployment rate grow up to 10.7% (+0.1 percentage
points), while the youth rate slight decreased to 32.8% (-0.1 percentage points).

So both unemployment and the unemployment rate rose. There is also something of a swerve familiar to regular readers of my work which is that the unemployment rate in January was reported originally at 10.5%. However it is now reported as being up 0.1% at 10.7%. So the impression is given that it is 0.1% up when in fact it was worse in January and is now worse than that or if you like the rise is 0.2% against the original. The fall in youth unemployment is much more welcome but it is hard not to have a concern about the way that it is still 32.8%. In fact there are two concerns to my mind. Firstly that it too may start to rise as prospects weaken and secondly along the signs of the song from Ace.

How long has this been going on?
How long has this been going on?

There must be more than a few in the youth unemployment numbers who have been unemployed for years and must feel like giving up.

Over the past year the decline in unemployment now looks rather marginal.

On a yearly basis, the growth of employment was accompanied by the fall of unemployed persons (-1.4%,
-39 thousand) and inactive people aged 15-64 (-1.3%, -169 thousand).

Actually I can go further as the three-month average looked like it was heading to 10% and did make 10.25% if I stare hard at the chart. But the reality was that the response to the relative boom was already over and the unemployment rate was turning and then rising.

Two lost decades?

A research paper from Italy’s statisticians suggest two linked and thereby troubling trends especially for the south.

 Both qualifications of the latter manual type show, in the twenty years, a considerable increase in the stock of employees that exceeds the growth of the
employed people who carry out work with higher qualifications. Also on the positive side of the variations, there are clear territorial differences that have a
different impact on the employment balance for Italy and for the South, where the contribution to the medium-high and high qualification employment is less than one third of
the contribution given by this work to the employment of the Country.

This is a version of my “Good Italy: Bad Italy” theme where the south in particular has seen quite a deterioration in the quality of employment and in particular skilled manual work has been replaced by non-skilled.

Official economic surveys

As you can see these bring maybe a little hope as they give opposite results.

In March 2019, the consumer confidence index decreased from 112.4 to 111.2. All of its components worsened: the economic, the personal, the current and the future one (from 126.4 to 123.9, from 108.2 to 106.8, from 109.4 to 107.8 and from 116.9 to 115.9, respectively).

With regard to the business surveys, the business confidence index (IESI, Istat Economic Sentiment Indicator) bettered from 98.2 to 99.2.

The business sentiment gain came mostly from the services sector.


There was a time around six months ago that the Italian government was talking about economic growth of 2% and in some extreme cases 3% where yesterday we were told this. From Reuters.

 Italy can’t afford fiscal expansion at a time when its economic growth is heading to close to zero, Treasury Minister Giovanni Tria said on Sunday.

Tria said Italy was in a phase of economic slowdown and could not consider introducing restrictive measures. He was speaking at a conference in Florence, and his remarks were carried on Italian radio stations.

“Certainly we don’t have the room for expansionary measures,” he then added.

Actually the official data has shown it to have been at zero in the year to the last quarter of 2018 and we now fear that it is contracting.. Any decline this quarter will put Italy into yet another recession and the number-crunching is not favourable.

The carry-over annual GDP rate of change for 2019 is equal to -0.1%.

Meanwhile over to the banks National Resolution Fund and its 2018 accounts.

The main results of the annual accounts for the year ended 31 December 2018 are as follows:

  • Assets € 429,869,033;
  • Liabilities € 972,900,609;
  • Endowment fund (excluding the result for the year) € (484,918,684);
  • Net result for the period € (58,112,892);
  • Endowment fund at 31 December 2018 € (543,031,576).

The negative net result for the period is largely attributable to:

  • Interest expense € (31.4 million);
  • Allocations to the provisions for risks € (26.5 million).

How does a negative endowment fund work?







16 thoughts on “Italy looks set for another economic recession sadly

  1. Hello Shaun,

    I fear Italy couldn’t borrow when in the black 🙂

    so when do you borrow to boost the economy if not in a downturn ?


    • Hi Forbin

      Under the Euro rules the restrictions on fiscal spending come from the size of the debt to GDP ratio at 132%. Oh for the days when they targeted Greece at 120% to avoid embarassing Italy and Portugal!

      But for now the only way out under the rules is economic growth which is not much used when exactly the opposite is in the offing. So we can expect a higher deficit and debt to GDP ratio followed by demands for austerity, I doubt that will end well.

  2. Hello Shaun,

    How does a negative endowment fund work?

    fine until the liabilities are due !

    then it’ll be like the new pensions everyone here has to have – no matter what you put in, the fund gets eaten away…….


  3. I thought the EU had approved Italy’s Budget on the basis of a 2%+ GDP. Surprise! it’s not happening and who would have thought it!
    I love Italy, but feel sorry that in the end the people are going to suffer to keep the EU “dream” alive.
    Another Greece?

    • Not every national problem is the EU’s fault. The south of Italy has benefitted hugely from EU membership, although it is an open question as to how much of that EU money was diverted on the way. If it weren’t for the EU and the historical associations of Rome I think Italy could well have done a Czechoslovakia by now.

      • it’s been mooted before , that Italy is two countries , industrialized North and agricultural south , that maybe they could split

        that would be down to the Italians though.

        then what next , Bavaria separate from the rest of Germany ?

        Often been said that California should split off the USA ( just as much as the Dixie set (!) ).

        Not sure if such an outcome would actually solve Italy’s economic issues too.

        Still a nice country to visit , even if Milan is a tad expensive 😉


  4. A nation which is bitterly divided. The young are robbed of opportunity, the old a protective of their established beenfits (however minor), the South is very different to the north. There are both extreme right and left parties dominating Govt.

    Does this sound familiar? Not turning Japanese but Britain is turning Italian.

    boyfriend in a coma anyone?

    Paul C.

  5. Hi Shaun

    The “sadness” is not so much that they are heading for recession; the economic cycle hasn’t been banished, but that they can do very little about it. They are hemmed in by the Euro and the growth and stability pact and they have virtually no room for manoevre.

    A recession will do nothing for their debt dynamics; it will just see the debt/GDP ratio climb significantly.

    It’s more than possible that Italy would be much more comfortable, relatively, outside the EZ but there is no way they should exit the zone as that would be cataclysmic. They are doing the only thing available to them now which is to push against the growth and stability pact and press for more lenient rules on these matters. When the EZ reaches its crisis, which it must surely do, then they may then have the opportunity of more radical action.

    • Hi Bob J

      Why do you think a departure from the Euro would be cataclysmic for Italy? Whilst it is true that Italy had its problems being it joined the Euro it is not hard to think it might easily have done better outside it. As a minimum the promises of better times via convergence with Germany have proven false except ironically at the moment and of course not in a good way.

      • Hi Shaun

        Because giving up your currency is a far bigger thing than just leaving the EU, as we are trying to do now. Currency is a symbol of sovereignty.

        Debt redenomination is bound to arise and, if this happened, which it surely will to some degree, this will not do Italy any good at all in the capital markets surely?

        If Italy left the Euro that would call into question the whole EU project itself because as goes the Euro so goes the EU itself. They might move heaven and earth to keep it within the EZ but who will pay the potentially large sums involved? Germany with Euros1 tn already under Target 2?

  6. Whenever one goes to Italy, one’s eyes seem to deceive one’s statistical perception of ever lasting depression. I sort of get the feeling that the black economy is so large and the ‘take’ from the State and EU is so large that not everything is what it seems. But what do I know?

  7. As an aside, when it comes to your favoured money supply numbers, I suppose it may not be possible to split this down by the Euro regions (some still mistakenly say ‘countries’)?

    For alternative measures of economic growth to the official numbers, are there other measures can give us an indication…like said money supply, perhaps the amount of cocaine in the sewage effluent, etc.etc.

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.