Italy Growth Beats Expectations

Italy'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% in the first quarter. But long-standing weaknesses—ranging from red tape and corruption to underinvestment in education and a huge public debt—remain, Reuters reported.

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 eurozone's third-largest 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% 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 motor-bikes which it exports to more than 90 countries.

"We are growing internationally because BMC is part of that 30% 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 ($14 million) this year.

Economy Minister Pier Carlo Padoan estimated this week that growth bounced back to 0.5% in the third quarter after slipping to 0.3% 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 labor 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% in 2016, according to the Organization for Economic Cooperation and Development. Italy's jobless rate of 11.1% and its youth unemployment at 35.7% remain among the highest in the EU.