Commentor Hans asked me in an early post on this developing crisis whether I saw any realistic alternative to the Prodi coalition. I had to admit that I didn't. Neither the Prodi coalition nor the Berlusconi one seem equipped to offer Italy the kind of policies she needs at the present time to get out of the mess she is entering as I write. So all I can do is mutter "here we go", roll my eyes, and look towards heaven.
My topic is economics, and the economics data is almost uniformly bad. Will an election do anything to help in this situation? I severely doubt it. What Italy needs to do is to wake up to the underlying and long term structural and demographic processes which are affecting it, and I very much doubt an election setting is the adequate place to get us on that road.
Indeed confindustria seem to agree with me since the head of the employers lobby Luca Cordero di Montezemolo is quoted yesterday as saying that Italy's ongoing political turmoil will only aggravate the effect of slowing economic growth in the U.S. and Europe and may lead the Italian expansion to stall even more than it would do this year.
``We will grow less than the other European countries this year and given the crisis, growth will likely be closer to zero than a higher level,'' Montezemolo, who is also chairman of Fiat SpA, told journalists during a conference in Milan. Confindustria's official growth forecast for Italy this year is 0.8 percent, though the ``situation is very difficult as far as consumption goes and in terms of economic growth,'' he said. Montezemolo said that the election law needs to be changed to ``guarantee governability.''
Indeed in saying that "growth will likely be closer to zero than a higher level", Confindustria seem to be moving nearer to my own forecast (which I think was the lowest one in the market when I made it) back at the begining of January.
More evidence of the storm clouds which are gathering. The latest of these is the January reading on the EU commission European Confidence Index. As can be seen in the chart, while there is some rebound in Ireland (the decline in previous month had been very steep), Spain continues its downward trajectory, and Italy continues to plunge.
Also the general movement in the index across eurozone countries is also clearly downwards.
Finally a relatively trivial, but in some ways quite significant piece of data yesterday:
Motorcycle and scooter sales in Italy, Europe's largest market for powered two-wheelers, slipped 7.7 percent in January after the collapse of Prime Minister Romano Prodi's government hurt consumer confidence. Italian new registrations of the vehicles fell to 25,896 last month, the Italian Motorcycle Association, Ancma, said in an e-mailed statement today. Scooter sales fell 5.1 percent to 16,295, while motorbike registrations dropped 12 percent to 9,601, Ancma said. "The sentiment of uncertainty in the country has penalized sales" Ancma President Guidalberto Guidi said in the statement.
I am just adding some charts to accompany the discussion in comments, to try and clarify a number of points. The charts are Italian imports and exports, German imports and exports, and Italy GDP and exports growth. The central point is that a comparison of Germany and Italy is interesting and instructive since they both have the same (very high, 43) population median ages, they consequently both suffer from weak internal consumption, and need to depend on exports for economic growth. This is a fairly fragile combination, since it means that each time the rate of expansion in global growth slows there is a collapse in GDP growth (ie there is no possibility of decoupling), and it is quite clear from the German chart what happens next to the German economy, which is why Trichet changed his discourse last Thursday presumably.
The big and important difference between Germany and Italy is that Germany gets quite high rates of export growth during the good years, and runs a trade surplus. Italy gets comparatively low export growth rates (for an export dependent economy) even during the good times, and of course Italy's fiscal debt is now so large that there is little room (in fact none) for fiscal easing during the downturns. So Italy's target has to be to emulate Germany, even while knowing that this is not a complete solution, doing something is always better than doing nothing.
Oh, and just for good measure, here's Italy's long term GDP growth rate.