Pil Italia, la view di Ihs Global Insight
a cura di Raj Badiani, Senior Economist, IHS Global Insight
The Italian economy was in line with expectations in the second quarter of 2015. According to a “flash” estimate from the Statistics Bureau, seasonally and calendar-adjusted real GDP rose by 0.2% between the first and second quarters after the economy staggered out of a short-live technical recession at end-2014. The annual comparison was positive, with real GDP rising by 0.5% when compared to a year earlier, and was the best performance since mid-2011.
The Statistics Bureau revealed limited detail about second-quarter GDP in terms of expenditure, suggesting that a change in inventories helped to offset a drag from net trade. This suggests that growth in domestic spending was limited and remained unbalanced during the second quarter, matching the first quarter experience. Indeed, the split of first-quarter GDP in terms of expenditure revealed domestic spending provided a positive contribution, but this was a lopsided outcome with transport investment and change in inventories providing the largest contributions to growth. Worryingly, both consumer spending and machinery and equipment investment continued to slide in early 2015 despite households and firms reporting strong confidence during the first quarter.
The moderate GDP developments in the first two quarters of 2015 provide further evidence that the situation for Italy remains precarious, and the recovery is far from established.
The economy staggered out of yet another recession in the latter stages of 2014, while the anticipated resumption of growth in the first half of 2015 was disappointing given it was the first gain since mid-2011, and was a lacklustre return from extremely supportive external factors.
A weaker euro and firmer demand across the Eurozone is prompting a revival in Italian exports but the pace of recovery lags behind the other recovering Eurozone economies. We suspect long-standing structural impediments that continue to hinder a stronger Italian export performance, illustrated by unhelpful unit labor and nonwage cost developments in Italy (highlighted by rising Italian unit labour costs from 2009 to 2013 while they have retreated in Spain, Portugal and Ireland). Not surprisingly, improving external competitiveness in Spain, Ireland and Portugal has allowed exports to play a major role to kick start a more aggressive recoveries in their respective economies.
The lack of Italian economic progress (with real GDP in the second quarter of 2015 still 9.0% below its pre-crisis peak in early 2008) since the adoption of the euro remains a major concern. Indeed, Spanish economic activity was close to its pre-crisis level by mid-2015, with real GDP just 4% below its recent peak in mid-2008.
Overall, we continue to believe near-term Italian growth prospects will fall short of the latest government and central projections, with our more cautious view reflecting improving but still lower than normal credit flows, past household and corporate income losses, and higher than normal unemployment, while the events in Greece appeared to unsettle firms and households during July.
We expect the economy to expand by 0.6% in 2015 and 0.9% in 2016, implying quarterly growth averaging just over 0.2% q/q in the second half of 2015 and 2016, which is reasonable given the structural impediments still weighing down on Italy. There are currently significant growth impulses for Italy, particularly coming from very low oil prices, a highly competitive euro, and considerable monetary policy stimulus.
Very low oil prices continue to elevate consumers’ purchasing power, which is getting a major boost from very low inflation, as well as boosting companies’ margins. Brent oil prices picked up from their mid-January near-six-year low of USD45.2/barrel to trade as high as USD69.6/barrel in early May, they were back down around USD50.0/barrel in early August. IHS expects them to remain relatively muted for a prolonged period, averaging USD54.6/barrel in 2015 and USD60.5/barrel in 2016. While the euro has climbed off the near-12-year low of USD1.0457 in January to currently trade around USD1.10, it is still at a very competitive level that should support Italian exports. However, limited global growth is currently limiting the upside for Italian exports, but IHS expects this to improve later on in 2015 and, particularly, 2016.
We expect consumers to be better placed to raise their spending levels during the second half of 2015 and 2016, increasingly attracted by generous pricing and boosted by recovering real incomes (accentuated further by income tax cuts from 2015), but the upturn is likely to be at a gentle pace at first. Critically, with Italy just about clambering out of recession in late-2014, alongside still dysfunctional credit markets and punishing labour developments, households are likely to remain guarded about spending on non-essential items. With the unemployment rate rising to 12.7% in June, poor labour market developments is a risk to the favourable external backdrop, and could extinguish he recovery spark in Italy during 2015, with the country lagging behind as growth accelerates across the single currency region.