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Italy Recovering From Recession

Italy Recovering From Recession
Italy Recovering From Recession

Italy’s economy will keep recovering from recession slowly but surely and avoid a renewed slump this year and next, a Bloomberg survey (March 4-11) of analysts showed.

The euro region’s third-biggest economy will extend the expansion that started last year, said 19 of 25 respondents in the poll published Tuesday. Still, the pace of growth in 2016 and 2017 will be slower than previously anticipated, according to the median forecast of economists, strategists and portfolio managers.

The recovery “will consolidate but at a slow process, with Italy under-performing both Spain and Portugal,” Alan McQuaid, chief economist at Merrion Capital in Dublin, said in his survey response. “Lack of real economic and structural reform will hamper the recovery, with much depending on whether Prime Minister Matteo Renzi manages to inject some meaningful fiscal stimulus into the economy."

Gross domestic product is seen increasing 1.1% in 2016 and 1.2% next year, the survey showed. That’s down from 1.2% and 1.4% respectively in a poll last month. The economy grew last year at a slower pace than it did after the previous slump in 2009 under then-premier Silvio Berlusconi.

In January industrial production increased more than twice the economists’ forecast, signaling that the recovery from the longest recession since World War II may continue. Output rose 1.9% from December, marking the biggest monthly increase since August 2011, national statistics bureau Istat said. On the same day as the report, employers lobby Confindustria warned that production might have fallen again in February, recording an estimated 1% drop.

Near Term

"We do not expect any recession in the near term," said Thomas Gitzel, chief economist at Liechtenstein’s VP Bank AG. Recent data and leading indicators "signal a solid development of GDP growth rates."

Italian executives have grown pessimistic about the economic outlook. Business confidence fell last month amid concerns GDP may fail to pick up after rising last year at a progressively slower pace amid weakness in global demand.

“Italy is, and has always been, a play on the global cycle, given the relative importance of its export sector,” Gianluca Sanna, senior economist at Banca Monte dei Paschi di Siena SpA in Milan, said last month as part of a related Bloomberg survey. “Wherever the global economy goes, Italy will follow.”

The country’s unemployment rate was unchanged in the fourth quarter from the previous three months at 11.5%, the statistics bureau said March 10. That compares with a high of 12.8% at the start of 2014, but it is still almost twice the rate it was in mid-2007, when the country entered the previous recession.

Glimmer of Hope

It's been a bleak start to the year for Italy's economy, despite Renzi’s rapid reform efforts and a glimmer of hope in the middle of last year.

The only good news has been that consumer confidence reached a record high in January, although business confidence was at its lowest in almost a year.

Some might argue that Italy, often dismissed as a basket case, has always been listless and that a crash is a foregone conclusion.

When the country somewhat blindly joined the euro in 1999, the cost of living almost doubled overnight, as salaries stagnated.

But back then there were at least more jobs and bank credit was easier to come by.

The global financial meltdown of 2008 changed all of that, with Italy's economy limping along ever since. In fact, the size of the Italian economy is roughly where it was over a decade ago.

Bankrupt Greece might have stolen the limelight over the past few years, but Italy, Europe’s third-largest economy and the world’s eighth largest, has been closely watched.

And even more so now as the country teeters on the edge of a banking crisis and concern mounts that it could now go the way of its southern European neighbor.

And if Italy goes the way of Greece, the impact will be monumental, not just for Europe, but the entire world economy.

Financialtribune.com