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?

Friday, May 23, 2008

Italy GDP Q4 2007 and Q1 2008

Well, for the first time in six months we do have some real GDP data to look at, even if it doesn't make particularly attractive reading. If we start with the quater on quarter growth rates, we find that in Q4 2007 Italy's economy contracted by 0.4% vis-a-vis the Q3 2007 level, while Q1 2008 GDP was up by 0.4% on Q4 2007. Now the more astute among you might like to note that since the 0.4% contraction in Q4 was on a larger base than the 0.4% expansion in Q1, in fact the net result is that the Italian economy actually grew smaller in the six months between Q3 2007 and Q1 2008 -declining in chain-weighted contant prices from 321.83 billion euro to 321.77 billion euro. I don't know if anyone wants to call this overall contraction a "technical recession", but it certainly isn't evidence for an economy in good shape, and the sad part is that there is obviously worse to come.

Year on year the picture doesn't look that much better, since we find the Q4 2007 GDP was only up 0.1% over Q4 2006, while Q1 2008 was up 0.2% in comparison with Q1 2007.

Whichever way you look at it the Italian economy has been virtually stationary over the last 12 months, and it looks like this situation may be repeated in the coming 12months. Unfortunately the Italian statistics office didn't provide a breakdown of the GDP figure in the preliminary estimate for the first-quarter and Istat will release its final report on Q1 Italian GDP on June 10, so we still have to wait a bit to find out what was responsible for the bounce back. However, what we do know is that in the fourth quarter Italian consumer spending fell 0.2 percent over the previous quarter.

Both imports and exports contracted in Q4 2007 when compared with the previous quarter, imports by 1% and exports by 1.3%.

As a result of the deterioration in exports, the trade deficit also got slightly worse and this was obviously a factor in the negative growth performance registered in the quarter, from 1.165 billion euros in Q3 to 1.443 billion euro in Q4.

Also, if we come to think about productivity, we might like to remember that Italy was actually creating employment during 2007, and that employment was up year on year by 1.3% in Q4, while GDP was only up by 0.1%, so on a rule of thumb calculation basis you could come to the conclusion that labour productivity actually declined during the year. Certainly there is no reason to imagine there was any significant improvement, and this is very bad news indeed.

Italy's problem is not just one of this quarter or this year. As can be seen from the chart below it is very long term. The big question is now what happens to the fiscal deficit this year, and what the credit ratings agencies are going to have to say about the situation.


Callum said...

Well at least it didn't officially fall into recession...if any plus point can be derived from this info. So the deficit gets worse but Berlusconi commits to a €5 billion bridge that won't be finished for at least 3years (and knowing Southern Italian timeframes probably more like 5 years) A matter of national urgency, he has said of the Reggio-Messina bridge. Why? The tax cuts on housing I do agree with in principal; Ireland and Spain both dug themselves out of the dungheap through housing/construction booms and the knock on effect on domestic demand. Italy hasn't had the building boom that has affected (or afflicted depending on how you look at it) Spain, Ireland, or even the US and UK. I don't think its the answer, but anything to boost internal demand must be good. To fund the cut in tax I hope they're cutting wages of Italy's overpaid political caste...
Italy burns while Berlisconi fiddles!!!

Edward Hugh said...

Hello Callum,

"Well at least it didn't officially fall into recession..."

Yes, so I suppose we can be thankful for small mercies, though at this stage this is a rather technical virtue. Italy's problem, as I say in the post, is long term, and tghe trend growth rate has been - as can be seen in the chart - steadily falling towards zero over the last decade. This raises the possibilility that it might turn negative at some point.

How much of this is simply due to bad policy, and how much is an effect coming from population ageing we simply don't know at this point, but it is something which should be constantly borne in mind.

"Ireland and Spain both dug themselves out of the dungheap through housing/construction booms and the knock on effect on domestic demand."

Yep, but both Spain and Ireland have very different demographic profiles at the present point, and anyway look what is happening to them now.

I think basically it is unrealistic to expect any major "ressurgence" in domestic demand. If we look at Japan and Germany which have the same median age - 43 - we see a similar picture.

Basically what sets Italy apart is its inability to create a trade surplus to get the growth it needs to support the rising elderly dependent population. I don't know how realistic this is, but if it isn't realistic for Italy then it is going to be even less so for a whole line of newly emerging economies who are now steadily moving up the median age slots, so some solution needs to be found, and the experimental test bed here is going to have to be Italy. I hope everyone is ready for this.

"Italy burns while Berlisconi fiddles!!!"

Well quite. But I'm not exactly sure what they are thinking about over at the ECB or in the EU Commission on this score either. If Italy can't grow then the sovereign debt is unsustainable and its as simply as that, even if the implications are huge.

piazza armerina said...

Ciao Edward, any chance of getting Italy out of the Eurozone? Then they could devalue like Argentina. You'd think foreign investment would flow in and growth rates could be 5%? Oh no ... won't work, the sovereign debt is linked to its neighbor's economies.

Seriously though, Italy may have "avoided" an official recession (and let's not hold our breath for that), but as far as I am concerned, they have been in recession for years. Just like you said, this is a long term problem.

1) Italy's eco. growth rate has lagged for years behind its Euro counterparts

2) Italy would have to string together a long-term positive eco. growth rate over the span of several years to gain back what it has lost vis-à-vis its peers and to gain back what it has lost itself, plus Italy would have to sustain a growth rate for a second long phase to begin to create the eco. development that would add value in the global economy and provide opportunity for its people.

1-Several years of growth to make up for long term losses and pay pension bills
2-Several more years of growth to began creating economic opportunity for Italians.

As a connaissance from Rome said to me once last year "we have already done our hard work in the world, now it's time to rest".

And with that, I rest my case that Italy's inabilities also stem from the attitudes of its 25-44 population. You cannot blame everything on the old geezers in power, like the young tend to do.