Claus Vistesen has already posted on how the pace of expansion of services activity in the Eurozone has been slowing for some four months now. The zones various economies generally seem to be over the peak in this cycle, lead by Germany, from where we learn today that industrial output actually declined in October. (It is worth pointing out at this stage that services activity is what we should be following most closely, since this accounts for some 70% of total economic activity).
More evidence that one swallow doesn't make a summer is to be found in today's retail sales data from Italy, since we learn that:
Italian retail sales fell the most in six-months in October as the prospect of government spending cuts and higher income taxes prompted households to shop less.
An index of retail sales stood at a seasonally adjusted 47.4 compared with 51.2 in September, according to a survey of 440 retailing executives compiled for Bloomberg LP by NTC Economics Ltd. A reading below 50 signals a contraction.
Now regular readers may remember that back in September, and hard on the heels of that important victory in the World Cup, Italian consumers were feeling very good indeed, and in particular buying a lot of cars from Fiat. I was also fairly sceptical that this optimism could be maintained in the face of a fairly complex economic and political reality. I think the way economic events are moving is more or less justifying my earlier reservations: 2006 has been a very good year in Italian terms, but here our best shot 'just isn't good enough', at least not yet it isn't:
While the dozen nations sharing the euro are benefiting from the fastest economic growth since 2000, Italy is struggling to keep up and has lagged the average growth rate of the euro bloc since at least 1992, according to Bloomberg data.
And don't miss this bit. Profitability is falling as margins are squeezed. This is a point I have been attempting to highlight in both the Fiat and the recent tourism data cases:
Italian retailers' profits were also squeezed by lower- than-expected sales, according to the report. A measure of gross profit margins had its biggest drop in seven months, falling to 40.6. That's down from September's 43.0. Thirty-eight percent of retailers said sales were worse than they had forecast for October.
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, November 07, 2006
Prodi's FT Interview
Romano Prodi has an interview in the FT today, here are some of the points that struck me:
"Italy must raise its economic growth rate to at least the European Union average or it will be “lost”,"
This is a fairly dramtic statement, which at the end of the day doesn't mean too much. It is headline catching, that is all. It is of course true, and more true than I think Romano Prodi really appreciates.
"We have been 24th out of the 25 countries in the last five years”
Well, again this is true, but it seems to be more a politically convenient statement, since the other side were in office during those years. In fact the low growth phenomenon in Italy goes back to the early 90s, and thus both sides of the political divide could be thought to share responsibility if the garden has been 'untended'.
Perhaps one of the most debatable points is this:
“The real situation of Italian industry is not as bad as many think. We have a surplus in our balance of trade, if you take out energy imports"
I really don't see the logic behind this sentence. Italy needs, or doesn't need, energy? Is Italy planning to become energy self-sufficient in the foreseeable future? If not, energy is an import just like any other kind of raw material, and the reality would seem to be that Prodi is indirectly admitting that Italy is running a trade DEFICIT.
Now the reasoning behind Prodi's 'spin' could be that he anticipates energy prices could drop at some stage. Is this a realistic expectation? Well energy and commodity prices have fallen back somewhat in recent months, but this is a result, more than anything, of anticipated declining demand, as global growth slows, rather than increased supply. So once we get through the next recession and global growth hits newer and higher records (as the developing countries develop) energy prices could well be expected to rise once more. So Prodi is offering false hope here I think, and whats more, since the lower prices of the moment are due to slower growth this will also hit his number one Italian objective of more growth.
On a more general level Italy desperately needs a substantial trade surplus if it is to generate growth, since, as I have been systematically arguing on this blog, societies with a median age of 44 find it very hard to generate substantial growth in domestic demand, so strong exports are very much a necessity rather than a luxury.
Talking of which:
"In the footwear industry, a traditional Italian strength, “the number of shoes sold has halved in 10 years but revenues have increased. Even in this very simple industry there has been a concrete restructuring and we have placed ourselves in the luxury bracket”.
Just how sustainable is this move up the value chain in traditional product manufacture? (Design would be another thing). This strategy has been employed by textile manufacturers here in Spain, and there are now an increasing number of complaints from those manufacturers about rising Chinese competition in this area too. This is hardly surprising, since China is itself struggling to move up the value chain, and while the Chinese may have started out with low end, low quality, products, they will undoubtedly not stop at this point any more than the Europeans or the Japanese did. It could well be a good idea to start bearing that in mind now.
"Italy must raise its economic growth rate to at least the European Union average or it will be “lost”,"
This is a fairly dramtic statement, which at the end of the day doesn't mean too much. It is headline catching, that is all. It is of course true, and more true than I think Romano Prodi really appreciates.
"We have been 24th out of the 25 countries in the last five years”
Well, again this is true, but it seems to be more a politically convenient statement, since the other side were in office during those years. In fact the low growth phenomenon in Italy goes back to the early 90s, and thus both sides of the political divide could be thought to share responsibility if the garden has been 'untended'.
Perhaps one of the most debatable points is this:
“The real situation of Italian industry is not as bad as many think. We have a surplus in our balance of trade, if you take out energy imports"
I really don't see the logic behind this sentence. Italy needs, or doesn't need, energy? Is Italy planning to become energy self-sufficient in the foreseeable future? If not, energy is an import just like any other kind of raw material, and the reality would seem to be that Prodi is indirectly admitting that Italy is running a trade DEFICIT.
Now the reasoning behind Prodi's 'spin' could be that he anticipates energy prices could drop at some stage. Is this a realistic expectation? Well energy and commodity prices have fallen back somewhat in recent months, but this is a result, more than anything, of anticipated declining demand, as global growth slows, rather than increased supply. So once we get through the next recession and global growth hits newer and higher records (as the developing countries develop) energy prices could well be expected to rise once more. So Prodi is offering false hope here I think, and whats more, since the lower prices of the moment are due to slower growth this will also hit his number one Italian objective of more growth.
On a more general level Italy desperately needs a substantial trade surplus if it is to generate growth, since, as I have been systematically arguing on this blog, societies with a median age of 44 find it very hard to generate substantial growth in domestic demand, so strong exports are very much a necessity rather than a luxury.
Talking of which:
"In the footwear industry, a traditional Italian strength, “the number of shoes sold has halved in 10 years but revenues have increased. Even in this very simple industry there has been a concrete restructuring and we have placed ourselves in the luxury bracket”.
Just how sustainable is this move up the value chain in traditional product manufacture? (Design would be another thing). This strategy has been employed by textile manufacturers here in Spain, and there are now an increasing number of complaints from those manufacturers about rising Chinese competition in this area too. This is hardly surprising, since China is itself struggling to move up the value chain, and while the Chinese may have started out with low end, low quality, products, they will undoubtedly not stop at this point any more than the Europeans or the Japanese did. It could well be a good idea to start bearing that in mind now.
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