Italy continues to see features of an economic depression

Today gives us an opportunity to compare economic and financial market developments in Italy as this week has brought some which are really rather extraordinary. Let us start with the economics and look at the IMF ( International Monetary Fund ) mission statement yesterday.

Real GDP growth in 2019 is estimated at 0.2 percent, down from a 10-year high of 1.7 percent in 2017.

As you can see they are agreeing with my theme that Italy struggles to sustain any rate of economic growth above 1% per annum. Then they also agree with my “Girlfriend in a Coma” theme as well.

 Real personal incomes remain about 7 percent below the pre-crisis (2007) peak and continue to fall behind euro area peers. Despite record employment rates, unemployment is high at close to 10 percent, with much higher rates in the South and among the youth. Female workforce participation is the lowest in the EU.

The real income situation is particularly damning of the economic position especially if we note that unemployment has continued to be elevated. That brings us back to the economic growth not getting above 1% for long enough for unemployment to fall faster.

What about now?

The IMF has a go at saying things will get better but then lapses into the classic quote of a two-handed economist.

The economic situation is projected to improve modestly but is subject to downside risks.

So let us see if the detail does better than it might go up or down?

Real GDP growth is forecast at ½ percent in 2020 and 0.6-0.7 percent thereafter. These forecasts are the lowest in the EU, reflecting weak potential growth. Materialization of adverse shocks, such as escalating trade tensions, a slowdown in key trading partners or geopolitical events, could lead to a much weaker outlook.

As you can see there is not much growth which frankly in measurement terms would take several years even to cover any margin of error. I also note a rather grim ending as the IMF maybe gives us its true view “could lead to a much weaker outlook.” Another slow down or recession would be a real problem as we note again that real personal incomes are 7% lower than before. If that is/was the peak then how long will this economic depression go on?

The Euro zone

If we look wider for en economic influence the news is not that good either. For example the situation from the overall flash Markit PMI business survey was this.

The ‘flash’ IHS Markit Eurozone Composite PMI®
was unchanged at 50.9 in January, signalling a
further muted increase in activity across the euro
area economy. The rate of expansion has remained
broadly stable since the start of the final quarter of
2019, running at the weakest for around six-and-ahalf years.

If we now move to my signal for near-term economic developments the ECB told us this yesterday.

Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, decreased to 8.0% in December from 8.3% in November.

The money supply situation had improved in 2019 but as you can dipped at the end. So the impetus is weaker than it was. In case you are wondering we have seen this before in phases of QE which is currently 20 billion Euros a month and thus boosting the numbers. There are other influences as well.

The broader money supply had a sharper fall and represents the outlook for 2021/22.

The annual growth rate of the broad monetary aggregate M3 decreased to 5.0% in December 2019 from 5.6% in November, averaging 5.4% in the three months up to December.

We will have to see if this is a new development or just a financial market glitch.

The annual growth rate of marketable instruments (M3-M2) was -7.2% in December, compared with -1.1% in November.

Back to Italy

The troubled area across much of the world is the industrial sector and the latest we have on that is this from the Italian statistics office.

The seasonally adjusted volume turnover index (only for the manufacturing sector) remained unchanged
compared to the previous month; the average of the last three months increased by 0.3% compared to
the previous three months. The calendar adjusted volume turnover index increased by 0.2% with respect
to the same month of the previous year. ( November )

This morning there was troubling news for those of us who have noted that employment has often been a leading ( as opposed to the economics 101 view of lagging) indicator in the credit crunch era.

The estimate of employed people decreased (-0.3%, -75 thousand); the employment rate went down to
59.2% (-0.1 percentage points).
The fall of employment concerned both men and women. A rise is observed among 15-24 aged people (+6
thousand), people aged 25-49 decreased (-79 thousand), while people over 50 remained stable.

This meant that if we look for some perspective progress seems to have stopped.

In the fourth quarter 2019, in comparison with the previous one, a slight increase of employment is registered (+0.1%, +13 thousand) and it concerned only women.

We will have to see if that continues as we worry about possible implications for this.

The number of unemployed persons slightly grew (+0.1%, +2 thousand in the last month); the increase
was the result of a growth among men (+2.2%, +28 thousand) and a decrease for women (-2.2%, -27
thousand), and involved people under 50. The unemployment rate remained stable at 9.8%, as also the
youth rate, unchanged at 28.9%.

Italian bond market

If we return to the IMF statement the story starts badly.

 Italy needs credible medium-term consolidation as fiscal space remains at risk.Debt is projected to remain high at close to 135 percent of GDP over the medium term and to increase in the longer term owing to pension spending. If adverse shocks were to materialize, debt would rise sooner and faster.

Somehow in the current economic environment the IMF seems to think that more austerity would be a good idea. Amazing really!

But this week has in fact seen this.

Massive, massive move in #Italy’s 10-year bond yield from 1.44% to 0.95% now. A 50 basis point move in a matter of days party driven by a #Salvini right-wing loss in regional elections. ( @jeroenblokland ) 

These days almost whatever the fiscal arithmetic we see that investors are so desperate for yield they will buy anything and hope the central bank will step up and buy it off them for a profit. Just as a reminder back around 2012 the yield went above 7% on fears the fiscal position suggested Italy was insolvent which of course were self-fulfilling as a yield of 7% made sure it was. But apart from QE what is really different now?


The depth of the problem is highlighted by this from the IMF.

Steadfast implementation of structural reforms would unlock Italy’s potential and durably improve outcomes. Reforms to liberalize markets and decentralize wage bargaining should be prioritized. They are estimated to yield real income gains of about 6-7 percent of GDP over a decade.

That’s a convenient number isn’t it? But the real issue is that this is a repetition of the remarks at the ECB press conference which are repeated every time. Why? Nothing ever happens.

The longer the economic depression goes on then the demographics become a bigger issue.

The number of births continues to decrease: in 2018, 439,747 children were registered in the General Register Office, over 18,000 less than the previous year and almost 140,000 less than 2008.

The persistent decline in the birthrate has an impact above all on the firstborn children, who decreased to 204,883, 79 thousand less than 2008.

Italy is a lovely country but the economics is an example of keep trying to apply the things that have consistently failed.

The Investing Channel




16 thoughts on “Italy continues to see features of an economic depression

  1. Hello Shaun,

    three thoughts on poor old Italy

    1, why do they need more employed people when it can be seen that AI will make most jobs redundant?

    2, the Green Luddites will be pleased – after all “growth” to them must be stopped* to save the planet, indeed Italy must shrink to do that ( along with all other major western powers but not apparently , China , India or Sub Saharan Africa….. hmmmm, makes you think, doesn’t it ? ) .

    3, When I was in Milan it appeared to be doing all right, busy place & prosperous.

    If we apply Forbins constant then Italy has been in a recession for some time now, I presume its the black economy that keeps its people afloat.


    * so as the joke goes Greenies chant ” no growth! , more genders!” ….
    ( waits to be lambasted by triggered SJW net trolls )

    • Hi Forbin

      Italy is in many ways ideal from the green agenda as it usually manages very little growth either economic or population and with its weather then solar power looks more feasible than here. I doubt it will be put like that though.

      I like Milan I hope you did too. Returning to the economics it is part of the good Italy bit ( mostly the north) much of the trouble is further south.

  2. In the meanwhile the Coronavirus deaths jumped from 132 to over 170 and BA to stop all flights to and from China is worrying and will only add to a slowdown in world growth.

    BOE interest rates on hold, which I think was a mistake as UK growth been downgraded yet again this year to:0.8%

    “The Bank also cut its growth forecasts for each of the next three years, predicting that the economy would grow by only 0.8% this year, 1.4% in 2021 and 1.7% in 2022. But its projections also suggest there is a 37% chance of Britain being recession at present.”

    I mean come off it the BOE hinted there would have to be a post BREIXT boost and they keep rates on hold and downgrade their forecasts for this year, what planet are they on?

    Too much dithering the UK needs a boost not more dithering the Coronavirus will knock world growth and as it takes time for a cut to have an effect more damager could be done to the UK economy imo.

    I know a lot wont agree but there we are.

    • Indeed , the economic effects of a pandemic like Spanish flu could be significant, the human cost more so …

      The death toll is estimated to have been 50 million, and possibly as high as 100 million (three to five percent of Earth’s population at the time)

      7.5 Billion means up to 375 Million deaths….. as Indy Jones said , ” not good , not good at all ”

      interesting times indeed……


      • I was watching a programme repeat on India railways with Dan Snow yesterday and thought to myself if it crosses into India it could spread at a phenomenal rate due to the trains being packed like Sardines and it was reported that they had their first case overnight.

        This is going to knock world growth more than SARS did imo its far more infectious.

        I think the BOE has made a mistake in not reducing interest rates but time will see whether I am right or not.

        • I wasn’t the only one who thought BOE would likely cut than remain the UK bonds rose after the data was published:

          BBC business live

          “British government bond yields soared to their highest levels in two years following the Bank of England decision to hold the interest rates steady, reports Reuters.
          The interest rate, or yield, of a bond tracks inflation because it is linked to how much it costs to hold onto the debt.
          Short term government debt made its biggest daily rise since Feb. 26 2018.
          Before the announcement was made, market sources indicated there was a 50% chance the decision could go either way. “

        • Reduce it to what? It’s not worked for ten years, why would it make any difference this week? Something to do with the Lunar New Year perhaps, since Carney is a loonie?

          • re : ” why would it make any difference this week?”


            As people have grown accustom to the high of 0.75% then a drop of 0.25% is a 3rd cut

            OMG ! run for the hills /sarc

            yes, you and I and others know this is bu@@er all but we’re dealing with a rabid MSM …


      • Ok, let’s not panic just yet. The mortality rate for this thing is about 0.5%, not the 20% of Spanish flu or the 50% of the Great Plague (whatever caused that). To get 375m deaths then literally everyone would have to catch it.

        • TW

          They actually don’t know the mortality rate yet some suggestions have been about 1% or 2% I think its above 0.5%.

          Population of India is 1.3 trillion so at 2% and everyone caught it would be 260 million alone, bit lets face it not everyone would be affected.

          One could argue let it run its course and don’t intervene as the most at risk with medical problems or the weak would die and let nature take its course, but would you say that if it affected your own family?

          The problem seems to be they only have an estimate of the mortality rate at the moment as lots of people affected and show no symptoms.

          One confirmed in India but observing 800 more!

      • Not as bad as the Spanish flue but we rely more on world trade maybe that is the reason why they are more worried. Chanel 4 interviewed a leading doctor of professor this evening and he said the mortality rate could be about 5% but also said they didn’t really know at the moment.

        It does appear to be very infectious however more than the SARS infection.

        But should it just run its course rather than all the damage to economies? That is the difficult question and I don’t know I am on the fence with that one.

    • I agree the UK needs a boost; I’m just not sure cutting bank rate will do it.
      The closer it gets to zero the less it seems to work.
      Maybe .5% should not have been labelled “emergency”
      Negative sentiments seem stronger than monetary stimulus.
      And I still think reducing the rate below 2% is a trap.

      • I think many out side of the hallowed towers of the BoE also think that too

        but the B’Arkers of the BoE are running the show……

        like all the middle management type – with that lot ?


  3. Hi Shaun

    Italy’s problems predate the Euro but the Euro has made them vastly worse. It has deprived the country of most of the tools it needs to correct the situation or to ameliorate changes that need to be made.

    It appears the only thing available is internal devaluation, a combination of austerity and wage cuts which are probably more likely to kill than cure the patient at this stage. It is an utterly depressing situation, not because nothing can be done but because something could be done but is out of reach.

    All these difficulties seem to me to confirm that the Euro is a doomsday machine which, contrary to its objective, is driving divergence and hastening the day when latent unsustainability becomes real unsustainability.

    • Hi Bob J

      In some ways the worst thing the Euro has done is fossilise the political structure. Thus the same old crew tend to roll on and as they do nicely have no great incentive to change things as they fear getting removed themselves. The people have more recently voted for change but so far five-star and the others have not achieved a great deal.

      With a structure like that any internal devaluation will have to be larger.

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.