Italy Economy Real Time Data Charts

Edward Hugh is only able to update this blog from time to time, but he does run a lively Twitter account with plenty of Italy related comment. He also maintains a collection of constantly updated Italy economy charts together with short text updates on a Storify dedicated page Italy - Lost in Stagnation?

Tuesday, February 12, 2008

Confindustria Reduce Italy Growth Forecast For 2008

Confindustria, Italy's largest employers' lobby, cut its forecast for Italy's 2008economic growth to 0.7 percent today. This is less than half the 1.8 percent rate of expansion predicted for 2007. Confindustria had been forecasting that Italy's economy, Europe's fourth biggest, would grow by 0.9 percent, and this had been a strong markdown from earlier higher estimates. The Rome-based employers' group updated its forecast after the national statistics office yesterday said December industrial production unexpectedly declined for a fourth month (see this post yesterday).

Also they seem to agree with me that Italy may well already be in recession, and say that the Italian economy probably contracted 0.1 percent in the fourth quarter of 2007 when compared with the previous quarter, according to a statement released yesterday by their research department. Technically a recession is two quarters of back to back negative growth. So we may have just had the first one, and now we need to see in more detail what happens in Q1 2008. Confindustria are, however, rather more optimistic than I am on this front, since they forecast that industrial production will "bounce back" in January, rising 2 percent from December. We will see. Clearly, after so many months of decline, some sort of recovery is to be expected, but conditions are hardly favourable at this point.

Really I would simply like to reiterate what I said at the start of January:

I personally will be very surprised if we still see calendar year 2008 anything like as high as 1.8%, but more to the point even 1.3% may be rather on the high side if we get a significant deterioration in the external environment, especially in Eastern Europe on which Italy is fairly dependent, and where the Italian banking sector has significant exposure. So that puts me much nearer to Pillona's "basement bargain" number of 0.5% than to any of the others. One of the reasons for my pessimism relates to my assessment of Italy's current trend growth rate, and to the level of fiscal and monetary tightening which may be operating on the economy even as it slows. During 2007 the Italian govenment has been running a fiscal deficit of comfortably below the 3% of GDP required by the EU commission. But since this fortunate situation was in part acheieved by the use of one off measures, and in part by the strong tax inflow from the above trend growth, the government will need to maintain a comparatively tight fiscal stance to keep things on course, and any attempt to further loosen may run into real problems with the EU commission and the credit rating agencies. And as I keep arguing, it is very hard to see an accomodative monetary posture from the ECB in the near future. The IMF in their October World Economic Outlook came in with a similar figure of 1.3% for 2008, the Economist Intelligence Unit is forecasting 1.7% in 2007 and 1.4 in 2008, and the latter 2008 figure was also endorsed by the EU commission in its November forecast.

As I indicate, my own view is well to the downside of all this. The only apparent bright spot on the horizon is employment, but I am dubious that in the context of Italy's ageing workforce this will work through as some are hoping, as I expain at some considerable length in this post here. My opinion is that Italy will enter recession at some point during 2008, and that we may well have 2 consecutive quarters of negative growth. The continuing high euro will maintain pressure on Italian exports, and high oil and food prices will maintain pressure on the inflation front, at least in the firts half of 2008. At the same time, and despite rumours that Romano Prodi's government is compemplating a large tax cutting package, I anticipate that the fiscal environment will remain tight. Italy's large (106% GDP) accumulated debt, and the vigilance from the gentlmen at Standard and Poor's and the other credit rating agencies more or less guarantee that.

As most of the forecasts suggest, we have been seeing growth which is somewhat above trend during the upswing in the last couple of years, so it would not be surprising if we now saw some below trend growth. Trend growth (over a 5 year average) in Italy may even have fallen into the 0.5 to 1% range, so if I have to put a number I would say 0.7% with a definite "downside risk" tag attached. The nearest forecast to this that I have seen is the 1% one from the Morgan Stanley GEF team. The implications of such sustained low growth are, I think, important, since if Italy cannot find the way to raise trend growth up towards the 2% mark there is simply no way the government debt can be stabilised and sustained. And with each passing year we have one year less to crunch time.

Monday, February 11, 2008

Italian Industrial Output Q 4 2007

Well the storm cluds certainly continue to gather over the Italian economy. We learn today that Italian industrial production fell for a fourth month in December as slowing economic growth cut demand for manufactured products.

Production declined 0.5 percent from the previous month, the Rome-based national statistics office ISTAT said today. Production dropped a workday-adjusted 6.5 percent from December 2006, the biggest year on year decline since December 2001.

The line from August you can see in the chart above seems very clear. And if we put the data on industrial output together with that for retail sales and the evolution in the trade deficit, then the possibility certainly exists that Italy fell into recession in Q4 2007. Anyway we shall all soon know, as ISTAT will be releasing provisional data before the end of the month.

The drop in Italian production in December contrasted with the situation in France, where a gain output expanded, according to the French Statistics Office INSEE, and French industrial production rose a month on month 0.7 percent.

Production of consumer goods declined 1.4 percent from November as the output of durable goods like refrigerators fell 1.3 percent. The output of non-durable goods declined 1.5 percent. Investment goods production fell 2.3 percent in the month and intermediate goods dropped 0.3 percent.

The decline in output in December contributed to a 3.4 percent drop in Italian production in the fourth quarter on a workday-adjusted basis. Production fell 0.2 percent in 2007 on an adjusted basis from the previous year. Unadjusted output gained 0.4 percent in 2007.

The decline in production may well be continuing into 2008, since Italian business confidence declined to a two-year low in January as a bleaker economic outlook hurt consumer demand for manufactured products.

Confindustria, Italy's largest employers' lobby, cut its 2008 growth forecastin December to 1 percent, about half the estimated pace for 2008. The Organization for Economic Cooperation and Development also cut its forecast for 2008 Italian growth on December 6th to 1.3 percent, from the 1.7 percent predicted in May. All these numbers may well now be subject to considerable downside risk.