Italy’s economic renaissance is less than meets the eye
taly’s slow economic recovery since 2014 is finally gathering pace, but the upturn is likely to prove short-lived as few, if any, of its structural problems have yet been fixed.
Those Italian companies that are internationally competitive are performing strongly and hiring staff, helping gross domestic product to jump 0.5 per cent in the first quarter. But longstanding weaknesses — ranging from red tape and corruption to underinvestment in education and a huge public debt — remain.
This suggests the upturn is merely part of the business cycle and risks fading once temporary factors, such as government employment incentives and ultra-low interest rates, start falling away.
Still, the Standard & Poor’s agency raised Italy’s sovereign credit rating last month for the first time in 35 years, citing improved growth prospects supported by rising investment and employment.
This surprised many observers, and yet data in the euro zone’s thirdlargest economy is beating expectations. Business morale is at its highest for a decade, industrial output rose in August for the fourth month running, export volumes climbed 2.8 per cent in the first eight months and GDP is forecast to grow this year at its fastest rate since 2010.
“Business is going very well,” said Gaetano Bergami, the owner of BMC, a medium-sized company based in Bologna which makes air filters for cars and motorbikes which it exports to more than 90 countries.
“We are growing internationally because BMC is part of that 30 per cent of Italian firms with competitive products,” he said.
The company recently hired around 10 workers to bring its total Italian workforce to 96, and its turnover has risen steadily to an estimated 12 million euros this year.
Economy Minister Pier Carlo Padoan estimated this week that growth bounced back to 0.5 per cent in the third quarter after slipping to 0.3 per cent in the second.
“The recovery is consolidating and GDP growth is getting more robust,” he said. However, BMC and similarly successful firms which managed to thrive even during Italy’s double-dip recession between 2008 and 2013 mask the country’s overall lack of competitiveness.
Bologna is capital of Emilia-Romagna, one of Europe’s strongest industrial regions and home to world beaters such as the Ferrari sports-car firm and Barilla food processing giant. But neither BMC nor Emilia-Romagna are typical.
Italian labour productivity — measured as output per hour worked — has been stagnant for the last decade and is the weakest in the European Union after Greece, according to Eurostat data. So-called “multi-factor productivity”, which measures the overall efficiency of an economy, has been equally dismal and actually fell 0.2 per cent in 2016, according to the Organisation for Economic Cooperation and Development.
Italy’s jobless rate of 11.1 per cent and its youth unemployment at 35.7 per cent remain among the highest in the EU.
Italy is being tugged along by strong European and global growth but it remains the euro zone’s most sluggish performer.
Not only did the economy contract far more than its euro zone partners following the global financial crisis, losing about 9 per cent of its GDP between 2008 and 2013, but its subsequent rebound has also been less pronounced.
Prime Minister Paolo Gentiloni has taken care not to raise unrealistic expectations. “Finally we are in a phase of economic recovery but we mustn’t overstate it or imagine that the wounds opened by the crisis have healed,” he said last month.
The International Monetary Fund forecasts the economy will grow 1.5 per cent this year, which is strong by Italian standards and in line with Rome’s own estimate.
But it is still the lowest projected growth rate of any EU country, and the IMF forecasts the gap between Italy and its partners will widen next year. “It’s hard to imagine Italy growing more than the other European countries,” Roberto Perotti, economics professor at Milan’s Bocconi University, said.