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?

Thursday, August 21, 2008

Eurozone Recession On the Horizon?

Is the first zone wide recession in the short history of the eurozone about to be registered? Certainly the flash PMI estimates for August give the impression that it might. The Royal Bank of Scotland Group Plc's composite index came in at 48 after 47.8 reading in July. Any result under 50 indicates contraction. Unfortunately we only get flash estimate breakdowns for France and Germany, but it isn't that difficult to deduce from the composite number that Spain and Italy continue to contract - although given that the composite rebounded slightly, while both services and manufacturing slowed in Germany, and in France manufacturing contracted more sharply in July while the contraction eased a bit in services, then it may be that Spain and Italy weren't contracting quite so strongly in August as they were in July.


The German manufacturing index fell to 49.9 in August, its lowest level in three years, after slipping back index to 50.9 in July.

Helping to push down the manufacturing indicator was the export component, which fell to its lowest level since June 2003, according to the report from Markit Economics.

The services PMI reading was not much better, falling to 50.6 in August from 52.1 in June. As things stand German services are riding just shy of contraction if the flash reading is borne out in the final result.

In its report, Markit Economics noted that the business expectations sub-index for Germany had slipped to the lowest level since November 2002.


Activity in France's manufacturing sector contracted at the sharpest rate in over six years in August, with a contraction of 45.1 being registered, down on July's 47.1 and the lowest level since December 2001.

The service index came in at 48.5, above July's 47.5 but still only its second time in negative territory since mid-2003. New business logged by service firms shrank at its fastest pace since the data was first collected in May 1998.

"If you extrapolate these figures through to the third quarter you're probably looking at stagnation of GDP (gross domestic product)... This is not a harbinger of imminent upturn," said Chris Williamson at data compiler Markit Economics. "Nothing points to a fundamental turnaround... I think there's been a spillover effect from Italy, Spain and now Germany, and France has followed suit."
So Is It Recession, and Will We See Rate Cuts From the ECB

Gross domestic product fell 0.2 percent in the second quarter from the first, when it grew 0.7 percent, according to the data released ny Eurostat (the European Union's statistics offic) last week, and it now seems clear that this contraction may well pass over into the third quarter. In fact Germany's Economy Ministry said only yesterday that the economic outlook in Germany has worsened even beyond the second quarter, when gross domestic product shrank for the first time in four years.

European consumers are not getting much relief from falling oil prices either, since while oil prices have fallen 20 percent from a record $147.27 a barrel on July 11 the euro has dropped 7 percent ($1.4780 today) from its peak of $1.6038 hit on July 15, taking a lot of the edge off the drop. The fall in the euro will however make exporting outside the zone easier, the difficulty is that the demand for exports is slowing generally as the global economy slows.

The European Central Bank, which raised its benchmark rate by a quarter point to 4.25 percent in July, currently predicts growth will slow to about 1.8 percent this year from 2.7 percent in 2007, but today's PMI data would seem to confirm that the ECB's growth projections are no longer realistic and that the time to move over into rate cuts mode is fast approaching.


Piazza Armerina said...

Just because Italy is downsizing, does not mean there will not be opportunities to proactively participate in it or help to manage it. Educated people with international experience in their 30s could be quite useful moving forward. Just don't expect to be paid a lot of money, and expect a lot of stagnation and immobility.

Secondly, we really do need to start analyzing the situation by regions. I believe I read somewhere in ISTAT that regional product growth in Nord-Occident for 2007 was greater than 2%, with unemployment at 6% overall and for executives less than 2%. There was job growth and income growth as well. In Mezzogiorno of course, it was less than 1%.

This is nothing new to analyze it in this way, people have been doing it for years. Now, we need to make the data more transparent. It's no different than the US (where San Jose and Houston are both booming large cities, and Detroit, etc is suffering).

So ... Italy is in a recession - just exactly where? I say there is still job and income growth in Milano and Roma for professionals.

By the way, despite my pessimism for Italy and Italians, I am seriously thinking about moving back in 2009 (for the long term). What Miami swamp water have I been drinking?

Callum said...

North Eastern Italy has been far outperfoming the most of the rest of Italy for many years - The old 'Genoa-Turin-Milan' industrial triangle is now more like the 'Milan-Bologna-Venice'

Lower manufacturing costs plus expertise in certain areas (esp. coffee machines, white goods) that have become very popular in the past few decades have seen many companise locate factorys in the North East over the past 25 years. Companies such as De Longhi, Zanussi, Smeg, Benetton, Illy, Massimo Zanetti, Ferrari, Maserati all hail from Emilia Romangna/Friuli/ of course a large financial sector headed up by the Generali. Its no coincedence that as products such as coffee machines, luxury cars, stylish large appliances have grown in demand the economy of the North-East has performed well. What's more these regions also boast a large tourist industry (Rimini, Venice, Verona...)

The North East is probably Italy's most dynamic region, but its far from the only area enjoying better growth than Italy's average- both Tuscany and Le Marche have been doing well (down to good centre-left leadership in part) Rome has been enjoying a renaissance of sorts, and though tourist numbers will probably be down 5% year n year growth should be solid. Of course the autonomous regions of Trentino alto Adige and Valle d'Aosta have been performing strongly too. After years of decline Turin seems to have made a recovery of sorts since reinventing itself as an avant garde design and technological centre. Even within the South Sicily and Basilicata have been going quite well.

But then we come to places like Campania and Calabria, where corruption, isolation, and the complete degradation of the enviroment has hugely impacted upon growth. Puglia where the light industries that lifted it above the rest of the South have moved on, Liguria which still hasn't fully recovered from the exhaustion of steel and is now facing a demographic crise, places like rural Lazio, Molise and inner Abruzzo which haven't oved on for many years and don't look like doing so anytime soon. Lombardy, though still an economic powerhouse has failed to shine of late, though maybe the reinvention of Milan will change this. The North will always be wealthy, its position is too central and the density of population too great to ever not be.

But Northern Italy is where the population is oldest, and the birth rate lowest. One of the few positive things about the Souths economic position is the fact that it has a highish birth rate and actally registered a relativly healthy natural increase last year. Of course most of the educated ones will leave to the North and other parts of Europe come the end of Uni, but they are still producing a workforce. Northern Italy, (excepting Aosta and Trento which could almost be treated as seperate countries)faces a huge shortage of skilled workers which won't be filled by the ever increasing number of illegal immigrants. At the moment there are enough S.Italians with education to make up for the gaps, but as the population ages further what then? N.Italy makes its money from Design, Engineering and Technology, all jobs which require highly skilled personnel. What happens when the supply falters? In Turin, arguably the automotive design capital of the world, as well as boasting the most dynamic IT sector in Italy, 33% of the population are over 65. Just 15% are under 18. Turin may have a new found vibrancy, but for how long if the ageing continues?

There seems to be a corrolation between wealthiness and the birth rate in Italy-the Southern regions have a significantly higher birth than the North, while the the centre fits in neatly between the two both in terms of weatlth and birth rate. However our far Northern friends of Trento and Aosta buck the trend once more...both coming just behind Campania to have the highest birth rate in Italy. Is this to do with their autonomy and the economic/political freedom it provides?

So yes, even as Italy as a whole slides into recession, many areas in Northern and Central Italy will post growth of more than 1% this year, Trentino and Veneto perhaps 2%...but meanwhile the Southern problem deepens. And the North isn't as seperate from the South as it would like to think. Italy is one nation, problems do and will spill over from area to area. Economically speaking it would probably make sense for the North to secede (perhaps as the gap widens it is inevitable)but where would the South be then? And without the North's money how could the South even think about trying to grow economically and socially? The underlying problem in Italy is the fractured state of the country - the great divide that has paralysed the economy, national spirit and the Dolce Vita. How can you expect a country to function properly when in one region the GDP pp is over €32,000 while in another its just €15,000, where unemployment fluctuates between less than 2% in certain regions, yet is above 20% in others. Compare Napoli and Milan, both major cities with populations (within city boundries) of 1.1 million and 1.3 million respectivly. Milan has a GDP/pp of c.€40,000, Napoli of c.€16,000..unemployment rates are 3% in Milan and 20% in Napoli. 50% of all foreign investment in Italy is made in Milan...somewhere below 5% in Napoli. Slight differences, no?

However I would still gladly live in Italy again, and will probably move there within next 3-5 years...I think there are plenty of professional jobs available in the North, while life is there is just so much nicer than in th UK/Ireland...


Edward Hugh said...

Hello You Two,

Very interesting comments. I basically agree with the general appraisal. And I definitely agree with this:

"Just because Italy is downsizing, does not mean there will not be opportunities to proactively participate in it or help to manage it."

Simply because the aggregate situation is not exactly encouraging doesn't mean that on the micro level there will not be lots of opportunities. A little annecdote here. My father returned to the UK for a visit in 1933 - which must have been the worst year of the depression - after 11 years as an immigrant in the US. He decided to stay.

He had done OK in the US and had savings, so he lashed out and bought himself two brand new limousines (he was an excellent mechanic) and cashed in on the fact that the local well-to-do's (who as Piazza keeps pointing out are never short of money) were making the transition from horse and carriage to motorised transport. But of course there were few people who knew how to maintain cars. (To give you some idea of the time difference back then, he told me when he went to join his brother in the US in 1922, he was met at the local station by a Dodge pick-up driven by a 12 year old). With the money he made from this little venture he set up a business which kept him (and me for that matter) comfortable for the rest of his life.

So not much changes in this regard.

"while life is there is just so much nicer than in th UK/Ireland..."

And in Spain may I add. We are just about to enter what promises to be the worst recession in recent European history, but I have no intention of moving. I am very happy where I am, thank you very much.


bellaitalia said...

Think of all of the children who were killed while in their classrooms in Italy during the earthquake. The engineers who built these schools were more concerned about lining their pockets instead of building a school with a strong foundation. The main foundation and structure of the school was a disaster waiting to happen. Those children could have been a wonderful contribution to the future of Italy. Now, will they be left to rest in peace, or will their peaceful remains be tossed in a single hole in the ground? The parents of these children are left with the pain and with asking, 'why?'