It is past time for us to revisit the economy of Italy which will no doubt be grimly mulling the warnings of a Euro area slow down from ECB ( European Central Bank) President Draghi and Italians will be hoping that their countryman was not referring to them.
When we look at the indicators that showed significant, sharp declines, we see that, first of all, the fact that all countries reported means that this loss of momentum is pretty broad across countries. It’s also broad across sectors because when we look at the indicators, it’s both hard and soft survey-based indicators.
We know that Bank of Italy Governor Visco will have given his views but at this stage we have no detail on this.
All Governing Council members reported on the situation of their own countries.
This particularly matters for Italy because its economic record in the Euro era has been poor. One different way of describing those has been released this morning by the Italian statistical office.
In March 2018, 23.134 million persons were employed, +0.3% over February. Unemployed were 2.865 million, +0.7% over the previous month.
Employment rate was 58.3%, +0.2 percentage points over the previous month, unemployment rate was 11.0%, steady over February 2018 and inactivity rate was 34.3%, -0.3 percentage points in a month.
Youth unemployment rate (aged 15-24) was 31.7%, -0.9 percentage points over the previous month and youth unemployment ratio in the same age group was 8.3%, -0.3 percentage points over February 2018.
The long-term picture implied by an unemployment rate that is still 11% is not a good one as we note that even in the more recent better phase for Italy it has not broken below that level. Actually Italy has regularly reported that it has ( to 10.8% or 10.9%) but the number keeps being revised upwards. Now whether anyone really believed the promises of economic convergence given by the Euro founders I do not know but if we look at the unemployment rate released by Germany last week there have to be fears of divergence instead,
The adjusted unemployment rate was 3.4% in March 2018.
The database does not allow me to look back to the beginning of the Euro area but we can go back to January 2005. Since then employment in Italy has risen by 722,000 but unemployment has risen by 977,000 which speaks for itself.
If we look at the shorter-term it is hardly auspicious that unemployment rose in March although better news more in tune with GDP ( Gross Domestic Product) data in 2017 is the employment rise.
The warning from ECB President Draghi contained this.
Sharp declines were experienced by PMI, almost all sectors, in retail, sales, manufacturing, services, in construction.
We can say that this continued in the manufacturing sector according to the Markit PMI.
The recent growth slowdown of the Italian
manufacturing sector continued during April as
weaker domestic market conditions limited order
book and production gains. Business sentiment
softened to an eight-month low.
The actual number is below.
declined for a third successive month
in April to reach a level of 53.5 (from 55.1 in
March). The latest PMI reading was the lowest
recorded by the survey since January 2017.
So a fall to below the UK and one of Mario’s sharp declines which seems to be concentrated here.
The slowdown was centred on the intermediate
goods sector, which suffered a stagnation of output
and concurrent declines in both total new orders
and sales from abroad.
If we try to peer at the Italian economy on its own this is hardly reassuring.
There were widespread reports of a
softening of domestic market conditions which
weighed on total order book gains.
Also it seems a bit early for supply side constraints to bite especially if we look at Italy’s track record.
“On the contrary, anecdotal evidence in recent
months has pointed to global supply-side
constraints as a factor limiting growth, and these
issues in April were exacerbated by increased
weakness in domestic market conditions
This morning’s official release is a bit of a curate’s egg so let us go straight to it.
In the first quarter of 2018 the seasonally and calendar adjusted, chained volume measure of Gross
Domestic Product (GDP) increased by 0.3 per cent with respect to the fourth quarter of 2017 and by 1.4 per
cent in comparison with the first quarter of 2017.
So the good news is that the last actual quarterly contraction was in the spring of 2014 and since then there has been growth. But the problem is something we have seen play out many times. From February 12th 2016.
The ‘good’ news is that this is above
#Italy‘s trend growth rate of zero
It is also better than this from the same article.
The number below was one of the reasons why the former editor of the Economist magazine Bill Emmott described it as like a “girlfriend in a coma”.
between 2001 and 2013 GDP shrank by 0.2%. (The Economist)
So better than that but the recent experience in what has been called the Euroboom brings us back to my point that Italy has struggled to maintain an annual economic growth rate above 1%. The latest numbers bring that to mind as the annual rate of GDP growth has gone 1.8%, 1.6% and now 1.4%. The quarterly numbers have followed something of a Noah’s Ark pattern as two quarters of 0.5% has been followed by two of 0.4% and now two of 0.3%. Neither of those patterns holds any reassurance in fact quite the reverse.
Why might this be?
There are many arguments over the causes of the problems with productivity post credit crunch but in Italy it has been a case of Taylor Swift style “trouble,trouble,trouble” for some time now. From the Bank of Italy in January and the emphasis is mine.
Over the period 1995-2016 the performance of the Italian
economy was poor not only in historical terms but also and more importantly as compared with its
main euro-area partners. Italy’s GDP growth – equal to 0.5 per cent on an average yearly basis against
1.3 in Germany, 1.5 in France and 2.1 in Spain – was supported by population dynamics, entirely due to
immigration, and the increase in the employment rate, while labor productivity and in particular TFP
gave a zero (even slightly negative) contribution,
The main issue is that the economy of Italy has barely grown in the credit crunch era. If we use 2010 as our benchmark for prices then the 1.5 trillion Euros of 1999 was replaced by only 1.594 trillion in 2017. So it is a little higher now but the next issue is the decline in GDP per capita or person from its peak. One way of looking at it was that it was the same in 2017 as it was in 1999 another is that the 28700 Euros per person of 2007 has been replaced by 26,338 in 2017 or what is clearly an economic depression at the individual level.
It is this lack of growth that has led to the rise and rise of the national debt which is now 131.8% of annual GDP. It is not that Italy is fiscally irresponsible as its annual deficits are small it is that it has lacked economic growth as a denominator to the ratio. Thus it is now rather dependent on the QE bond purchases of the ECB to keep the issue subdued. Of course the best cure would be a burst of economic growth but that seems to be a perennial hope.
Looking ahead deomgraphics are a developing issue for Italy. From The Local in March.
Thanks to the low number of births, the ‘natural increase’ (the difference between total numbers of births and deaths) was calculated at -134,000. This was the second greatest year-on-year drop ever recorded.
On this road a good thing which is rising life expectancy also poses future problems.
As to the banking system well we have a familiar expert to guide us. So far he has had an accuracy rate of the order of -100%!