Italian Economy Struggles to Recover


In the first three months of 2013, Italian GDP contracted for a 7th straight quarter and the country is now facing its longest recession in 20 years. The current economic weakness reflects the deterioration of households' purchasing power which is likely to worsen in the short-term. Indeed, tight fiscal consolidation policy and rising unemployment continue to undermine consumer and business confidence.

In fact, in the fourth quarter of 2012, the consumption plunged to a decade-low level and is likely to decline further through 2013 as consumer confidence was reported near its historic low in April. Additionally, in March, the jobless rate was reported at 11.5 percent, only 0.2pp below its all-time high and youth unemployment soared to 36.3 percent. The business sector outlook is not brighter. In March, industrial production decreased 5.3 percent and is now 25 percent lower than at its peak five years ago. Furthermore, business confidence remains very low indicating there is still no industry rebound on the horizon. To make things worse, the political environment is very unstable. In April, following a 2-month deadlock in which parties failed to form a government, the President appointed Enrico Letta as Prime Minister and put together a three-party coalition to lead the country.


Italy's economy has been in recession for seven quarters in a row. In the first quarter of 2013, the GDP contracted 2.3 percent year-on-year and 0.5 percent quarter-on-quarter.


In April, consumer confidence fell to 90.5, only 0.7 points above its historic low recorded in January of 2013. As such, retail sales have been falling since April of 2012 and contracted 3.0 percent yoy in March.

In May, business confidence was reported near historic lows. Industrial production has been contracting since September of 2011 and fell 5.2 percent yoy in March of 2013.
In March, the jobless rate was unchanged at 11.5 percent. This is only slightly down from the all-time high of 11.7 percent recorded in January.



Nuno Fontes | nuno@tradingeconomics.com
5/29/2013 9:09:43 AM


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Italian Economy is Likely to Remain Fragile in the Months Ahead
In the first quarter of 2013, Italy's GDP contracted 0.6 percent qoq, putting the country in the longest recession in more than 20 years. While private consumption has been hampered by rising unemployment and austerity measures, tight credit conditions and political instability add to feeble business sentiment.
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Italian Economy Struggles to Recover
In the first three months of 2013, Italian GDP contracted for a 7th straight quarter and the country is now facing its longest recession in 20 years. The current economic weakness reflects the deterioration of households' purchasing power which is likely to worsen in the short-term. Indeed, tight fiscal consolidation policy and rising unemployment continue to undermine consumer and business confidence.
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Recent updates for the Italian economy are showing that recovery may be still out of reach. In the fourth quarter of 2012, GDP contracted 2.8 percent year-on-year and 0.9 percent quarter-on-quarter. More importantly, the possibility of further austerity measures continues to harm consumer confidence which was reported near its record low in April of 2013. To make things worse, the unemployment rate is near the all-time high of 11.7 percent. The business sector outlook is not brighter. In March, industrial production decreased 5.3 percent and is now 25 percent lower than at its peak five years ago. The business confidence indicator, mainly stable, is still very low. On top of that, the February election resulted in a parliamentary stalemate and is bound to drive up borrowing costs as investors’ confidence is harmed by political instability.
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