The subject of Italy and its economy has been a regular feature on here as we have observed not only its troubled path in the credit crunch era but also they way that has struggled during its membership of the Euro. This will no doubt be an issue in next month’s election but the present period is one which should be a better phase for Italy. Firstly the Euro area economy is doing well overall and that should help the economy via improved exports.
Seasonally adjusted GDP rose by 0.6% in both the euro area (EA19) and in the EU28 during the fourth quarter of
2017, compared with the previous quarter……..Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 2.7% in the euro area and
by 2.6% in the EU28 in the fourth quarter of 2017…….Over the whole year 2017, GDP grew by 2.5% in both zones.
The impact on the economy of Italy
If we switch now to the Italian economy we find that there has been a boost to the economy from the better economic environment. From the monthly economic report.
Italian exports keep increasing with a positive trend following world trade expansion…….Over the period September-November, foreign trade kept a positive trend
driven by the exports (+2.9%), while the imports increased at a lower pace (+0.6%).
However the breakdown was not as might be expected.
Sales to the non-EU area (+4.6%) contributed positively to the favorable trend in exports and more than the sales to the EU area (+1.5%). In 2017, trade with non-EU countries increased both exports (+8.2%) and imports (+10.8%).
So the export-led growth is stronger outside the Euro area than in it which is not what we might expect as we observe the way that the Euro has been strong as a currency. Effects in this area can be lagged so it is possible via factors such as the J-Curve that the new higher phase for the Euro has yet to kick in in terms of its impact on trade, so we will have to watch this space.
There was some good news on this front in December as the previous analysis had been this.
Taking the average values of September-November, shows that production decreased compared to the previous quarter (-0.2%, ). In the same period all the main industrial groupings recorded a decrease except durable consumer goods (+2.7% compared to the previous quarter).
As you can see that is not what might have been expected but last weeks’ data for December was more upbeat.
In December 2017 the seasonally adjusted industrial production index increased by 1.6% compared with the previous month. The percentage change of the average of the last three months with respect to the previous three months was +0.8.
This meant that the position for the year overall looked much better than the downbeat assessment above.
in the period January-December 2017 the percentage change was +3.0 compared with the same period of
If we move to the outlook for 2018 then the Markit business survey or PMI could not be much more upbeat.
Italy’s manufacturing sector enjoyed a strong start
to 2018, registering the highest growth in output
since early 2011 and one of the greatest rises in
new orders of the past 18 years.
In addition domestic demand was seen adding to the party.
but January data pointed to a growing contribution from within Italy itself.
This leads to hopes for improvement in one of the Achilles heels of the Italian economy.
The response from many manufacturers was to
bolster employment numbers, and January’s survey
indicated the second-strongest rise of employment
in the survey history.
Unemployment and the labour market
At first glance the latest data does not look entirely impressive.
In December 2017, 23.067 million persons were employed, -0.3% over November 2017. Unemployed were
2.791 million, -1.7% over the previous month.
There is a welcome fall in unemployment but employment which these days is often a leading indicator for the economy has dipped too.
Employment rate was 58.0%, -0.2 percentage points over the previous month, unemployment rate was
10.8% -0.1 percentage points over November 2017 and inactivity rate was 34.8%, +0.3 percentage points in
However if we look back we see that over the past year 173,000 more Italians have been employed and the level of unemployment has fallen by 273,000. What we are still waiting for however is a clear drop in the unemployment rate which has been stuck around 11% for a while. We are told it has dropped to 10.8% but there has been a recent habit of revising the rate back up to 11% at a later date meaning we have been told more than a few times that it has fallen below it. Sadly much of the unemployment is concentrated at the younger end of the age spectrum.
Youth unemployment rate (aged 15-24) was 32.2%, -0.2 percentage points over the previous month.
So better than Greece but isn’t pretty much everywhere as we again wonder how many of these have never had a job and even more concerning, how many never will?
Sometimes we are told that higher unemployment rates are a consequence of better wages. But is we look at wages growth there does not seem to be much going on here.
The labor market outlook is characterized by the wage
moderation: in 2017 both the index of contractual wages per employee and that of hourly wages increased by +0.6% y-o-y.
On a nominal level that is a fair bit below even the UK but of course the main issue is in real or inflation adjusted terms.
In January 2018, according to preliminary estimates, the Italian consumer price index for the whole nation (NIC) increased by 0.2% on monthly basis and by 0.8% compared with January 2017 (it was +0.9% in December 2017).
So there was in fact a small fall in real wages in 2017 which we need to file away on two fronts. Firstly there is the apparent fact that better economic conditions in Italy are not being accompanied by real wage growth and in fact a small fall. Secondly we need to add that rather familiar message to our global database.
This is a long running story of how the banking sector carried on pretty much regardless after the credit crunch and built up a large store of non-performing assets or if you prefer bad loans. This has meant that many Italian banks are handicapped in terms of lending to help the economy and some have become zombified. From Bloomberg earlier.
Even after making reductions last year, Italian banks are still weighed down by more than 270 billion euros ($330 billion) of non-performing loans. Struggling households account for almost a fifth of that total, according to the Bank of Italy.
It is hard not to have a wry smile at a proposed solution.
The Bank of Italy says an improvement in the country’s real estate market is helping to reduce the risks for banks.
Whether that will do much good for what has become the symbol of the problem I doubt but here is the new cleaner bailed out Monte Paschi. From Bloomberg on Monday.
The bank, which is cutting about a fifth of its workforce, eliminating branches and plans to sell 28.6 billion euros of bad loans by 2021, posted 501.6 million-euro net loss in the last three months of the year.
How is the bailout going?
The shares were down 2.8 percent at 3.72 euros as of 9:55 a.m. The stock, which returned to trading Oct. 25 after an 10-month suspension, is now valued more than 43 percent below the 6.49 euros apiece paid by Italy for the rescue.
This morning it is 3.44 Euros so the beat goes on especially as we note that pre credit crunch and the various bailouts the equivalent price peak was over 8800.
This issue continues to be ongoing.
The population at 1st January 2018 is estimated to be 60,494,000; the decrease on the previous year was
around 100,000 units (-1.6 per thousand).
Driven by this.
The number of live births dropped to 464 thousand, 2% less than in 2016 and new minimun level ever.
We have seen on the news so often that there is considerable migration to Italy and if we look into the detail we see that not only is it so there is something tucked away in it.
The net international migration in 2017 amounted to +184 thousand, recording a consistent increase on the
previous year (+40 thousand).
Yet Italians themselves continued to leave in net terms as 45,000 returned but 112,000 left which is a little surprising in the circumstances. As to the demographics well here they are.
At 1 January 2018, 22.6% of the population was aged 65 or over, 64.1% was aged between 15 and 64, while
only 13.4% was under 15 years of age. The mean age of the population exceeded 45 years.
The theme is that the natural change has got worse over the past decade rising from pretty much zero to the 183,000 of 2017 but contrary to the news bulletins net immigration is lower as it approached half a million in 2007.
This morning has brought news which will be very familiar to readers of my work which is an Italian economy which seems to struggle to grow at more than around 1% per annum for any sustained period.
In the fourth quarter of 2017 the seasonally and calendar adjusted, chained volume measure of Gross
Domestic Product (GDP) increased by 0.3 per cent with respect to the third quarter of 2017 and by 1.6 per
cent in comparison with the fourth quarter of 2016.
As we note a negative official interest-rate ( -0.4%) and a large amount of balance sheet expansion from the European Central Bank the monetary taps could not be much more open. Italy’s government in particular benefits directly by being able to borrow very cheaply ( ten-year yield 2.05%) when you consider it has a national debt to annual GDP ratio of 134.1%. Thanks Mario!
Thus we return on Valentines Day to the “Girlfriend in a Coma” theme of Bill Emmott which is a shame as Italy is a lovely country. Can it change? Let us hope so and maybe the undeclared economy can be brought to task. Meanwhile if you want to take the Matrix style blue pill here is Bloomberg.
ITALY: GDP expanded by 0.3% in 4Q, a bit less than expected. Still, 2017 was the best growth year (+1.5%) since 2010. Shows how broad-based the euro-area recovery has become. A rising tide lifts all boats