Introduction to Italian economy – Italian economy is the 3rd largest economy in the eurozone after Germany and France

Introduction to Italian economy –
Italian economy is the 3rd largest economy in the eurozone after Germany and France, the 8th-largest by nominal GDP in the world, and the 12th-largest by GDP. Despite having these attributes, Italy is facing political and economic crisis which has worried EU as well as the global markets. Italy has never show any positive signs since the financial crisis. The country was not doing well even before the financial crisis. Italy grew on an average of 1.2% between 2001 and 2007. In 2009, the economy experienced further reduction of 5.5% which was the biggest GDP fall. Thereafter Italy has never shown a sign of recovery. In 2012 and 2013 the economy recorded contractions of 2.4% and 1.8% respectively.
Italy is in a problematic state from many years with the increase in the debt, public finances and also the high unemployment rate. Italy is facing double-digit unemployment rate and this shows the feebleness of the Italy’s labour market. The debts are also increasing every quarter and the investors fear that the government will default on them. The data from ISTAT and OCED clearly states that economy in Italy has not grown fast like other European economies. Other EU countries have performed better than Italy. There is no change in the GDP in the 3rd quarter of 2018. The economists had expected a growth of at least 0.2%. Since the GDP was flat in the 3rd quarter, it has bought disappointments. The GDP was 0.17 in the 2nd quarter of 2018 compared to 0.276 in the first quarter of 2018. (data obtained from OECD). Bloomberg stated that Italy’s slowdown has its roots in weakening of the euro zone economy.
Giuseppe Conte, Italy’s Prime Minister, said the slowdown was expected, which is why the government has chosen to pass an expansionary budget.
Bank of Italy Governor Ignazio Visco said that “families and firms would suffer if borrowing costs stayed high, and called on the government to ensure fiscal stability”.
Sean O’Grady (Sean O’Grady is Deputy Managing Editor and former Economics editor of the Independent) stated that “Italy is pushing Europe to the brink of another economic crisis – but its problems are nothing new. The nation is as divided as ever – rich and poor, north and south, populists and neo-fascists versus the moderates. Imagine a nation governed by an administration with Ukip’s attitude to migration but Jeremy Corbyn’s economic policies and you have the measure of Italy today”.
Domestic demand – GDP (Gross domestic product) refers to the total market value of all goods and services that are produced within a country per year. It is an important indicator of the economic strength of a country. Real GDP is adjusted for price changes and is therefore regarded as a key indicator for economic growth. Italy’s GDP is mainly composed of agriculture, services, industry and manufacturing. There was a 0.2% rise in the second-quarter, and 0.8% rise annually, national statistics bureau ISTAT said. Italy’s GDP is getting flattened.
The capital investment in Italy and other countries is calculated as the purchases of new plant and equipment by firms, as percent of GDP. A high number is good for long-term economic growth as current investment leads to greater future production. According to OECD, the investment in Italy was increased by 4.3% in 2017 compared to 3.5% in 2016.
Exports and Imports – Italy’s manufacturing sector expertises in high-quality goods and it plays major role in the international market of luxury goods. The country’s main exports are mechanical machinery and equipment, which account for around 24% of total exports, as well as motor vehicles and luxury vehicles (7.2%). In fact, exports of clothing and footwear account for around 11.0% of the country’s total exports. Other important exports include electronic equipment (5.6%) and pharmaceutical products (4.6%). Italy’s main imports are fuels, which account for around 17% of total imports. This is due to the country’s lack of natural resources, which makes it highly dependent on energy imports. Other imports include machinery (14.2%), raw materials (10.0%) and food (7.0%). Italy is a net food importer because the landscape is not suitable for developing agriculture. From the below table (Source: OECD), we can see that Italy’s exports are more than imports.
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Exports of goods and services (%of GDP) 26.2 27.4 27 22.5 25.2 27 28.6 28.9 29.3 29.9 29.6 31.2
Imports of goods and services (%of GDP) 27.1 27.8 27.8 23.1 27.2 28.6 27.6 26.6 26.5 27 26.4 28.2

Industrial production – refers to the output of industrial establishments and covers sectors such as mining, manufacturing, electricity, gas and steam and air-conditioning. This indicator is measured in an index based on a reference period that expresses change in the volume of production output. Industrial production (index=100) increased in 2017 and was 104.8 compared to 101.5 in 2016. Industrial production in Italy increased by 1.7 percent month-over-month in August of 2018, following a 1.6 percent fall in September and beating market consensus of a 0.8 percent gain. It was the biggest gain in industrial output since December last year. Considering the first eight months of the year, industrial output advanced 1.8 percent compared to the same period of 2017.
Current inflation Italy (CPI Italy) – the inflation is based upon the Italian consumer price index. The index is a measure of the average price which consumers spend on a market-based “basket” of goods and services. Inflation based upon the consumer price index (CPI) is the main inflation indicator in most countries. According to the Istat’s press release date on Consumer prices (provisional data), “consumer price index was stable on monthly basis and was increased by 1.6% with respect to October 2017, up from +1.4% in September 2018. In October 2018, according to preliminary estimates, the rate of change of Italian harmonized index of consumer prices (HICP) increased by 0.2% with respect to the previous month and by 1.7% with respect to October 2017 (the annual rate of change observed in September was +1.5%)”.
CONSUMER AND BUSINESS CONFIDENCE – https://www.istat.it/en/archivio/223069 – In October 2018, the consumer confidence index improved slightly from 116.1 to 116.6. With regard to the individual components, the future component increased from 120.3 to 121.5, while the economic component remained basically stable (from 137.8 to 137.7); the personal and the current components declined from 109.3 to 108.7 and from 114.1 to 112.5 respectively. The balance concerning expectations on unemployment decreased from 18.2 to 12.9. Both the balance on inflation perceptions referring to the last 12 months and the balance on inflation expectations for the next 12 months improved from -7.8 to -1.3 and from -12.1 to -0.8 respectively. With reference to the business confidence surveys, the composite business confidence climate index (IESI, Istat Economic Sentiment Indicator) weakened from 103.6 to 102.6. The confidence index in manufacturing went down from 105.6 to 104.9. Both assessments on order books and production expectations worsened (balances from -6.5 to -7.2 and from 12.0 to 10.6 respectively), while the balance on inventories remained substantially unchanged (from 4.1 to 4.0). The confidence index in construction increased from 136.9 to 138.9. Assessments on order books/construction plans improved (balance from -18.5 to -14.5), while employment expectations worsened (balance from -0.6 to -2.0). The market services confidence index dropped from 105.1 to 103.7. Both the assessments on order books and the assessments on business trend changed for the worse (balances from 8.7 to 6.1 and from 14.1 to 10.3 respectively), while the expectations on order books improved (balances from 4.0 to 6.0). The retail trade confidence index decreased from 104.3 to 101.7. Both the assessments on current sales and the expectations on future sales worsened (balances from 5.9 to 3.5 and from 27.8 to 23.2 respectively). The balance concerning the assessments on volume of stocks went up (from 13.5 to 14.5). The index decreased in the large scale distribution (from 105.7 to 101.7) while improved slightly in the small and medium scale distribution (from 99.9 to 100.5).
Unemployment – The unemployment rate fell to its lowest levels in over six years in July. Its economic structure relies mainly on services and manufacturing. Italy suffers from political instability, economic stagnation and lack of structural reforms. Prior to the 2008 financial crisis, the country was already idling in low gear. In fact, Italy grew an average of 1.2% between 2001 and 2007. The global crisis had a deteriorating effect on the already fragile Italian economy. In 2009, the economy suffered a hefty 5.5% contraction—the strongest GDP drop in decades. Since then, Italy has shown no clear trend of recovery. In fact, in 2012 and 2013 the economy recorded contractions of 2.4% and 1.8% respectively. Going forward, the Italian economy faces a number of important challenges, one of which is unemployment. The unemployment rate has increased constantly in the last seven years. In 2013, it reached 12.5%, which is the highest level on record. The stubbornly high unemployment rate highlights the weaknesses of the Italian labour market and growing global competition. Another challenge is presented by the difficult status of the country’s public finances. In 2013, Italy was the second biggest debtor in the Eurozone and the fifth largest worldwide.

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https://en.wikipedia.org/wiki/Economy_of_Italy
https://www.focus-economics.com/countries/italy
https://uk.reuters.com/article/uk-italy-budget/italy-central-bank-chief-warns-on-rising-borrowing-costs-idUKKCN1N51LZ
https://www.investopedia.com/terms/g/gdp.asp
https://www.bloomberg.com/opinion/articles/2018-10-31
https://tradingeconomics.com/italy/
https://www.istat.it/en/archivio