The Problems Created By The Economic Depression In Italy Are Mounting

[Sancho Panza]

Shaun Richards 12/9/14

'A week and a day ago the European Central Bank announced further interest-rate cuts and signalled future purchases of Asset Backed Securities and Covered Bonds in a bid to boost the Euro area economy. At the forefront of the minds of the Governing Council of the ECB must have been the continuing travails and indeed state of woe that exists around the Italian economy. This was supposed to be the year that contraction turned to recovery and growth as the European Commission forecasts have consistently projected economic growth for 2014 and even this spring they forecast 0.6%. Instead the Italian economy contracted by 0.4% in the first quarter of the year and by 0.2% in the second.

In itself this could have been just a reverse but it has come on the back of an Italian economy whose struggles began some time before the credit crunch. Much of the state of play was described in the excellent documentary Good Italy Bad Italy which is sometimes called Girlfriend in a Coma by the former editor of the Economist Bill Emmott. however there is a chilling addition now to such themes as the Italain economy has not grown in thsi century and therefore if we look back we need to describe it as being an economic depression. As the population has grown during this century the experience of the average Italian is worse than the aggregate.

Today’s data

This morning saw a major piece of hard data for the third quarter of 2014 and it too disappointed.

The reason why these numbers were a particular disappointment was that the numbers for June had pushed into positive territory building hopes of a change in trend. Indeed the monthly review by the Italian statistics office had been very bullish.

In July 2014 the industrial production index seasonally adjusted decreased by 1.0% compared with the previous month. The percentage change of the average of the last three months with respect to the previous three months was -0.8.

But that improvement looks short-lived as the annual comparison again heads south.

Industrial production (excluding construction) is leaping . In June, the seasonally adjusted index increased (+0.9% m-o-m),

If we look at the calendar adjusted index we see that the last five July’s it has gone 115, 115.1, 108.6, 104.5 and now 102.6. So post credit crunch it did stabilise for a while but then retreated. I checked the past numbers as far as the current series goes (1990) and you may like to sit down if you are not already so doing. This is because in July 1990 the calendar adjusted industrial production of Italy (2010=100) was 111.7 or 8% higher than in the July just past. Of course this pattern is a sadly familiar one in the western world as a whole but if Italy overall is enmeshed in a depression what words and phrases do we have for its industrial production?

The calendar adjusted industrial production index decreased by 1.8% compared with July 2013.

What about employment and unemployment?

The situation here continues to be problematic as highlighted below.

In July 2014 Unemployed were 3.220 million, +2.2% with respect to the previous month……unemployment rate was 12.6%, +0.3 percentage points over the previous month,

There had been signs of an improving trend here but July dashed that and employment performed badly too.

As employment has been a leading indicator in the credit crunch era these numbers generate concerns for prospects for the rest of 2014.

Employment rate was 55.6%, -0.1 percentage points with respect to June 2014…… In July 2014 22.360 million persons were employed, -0.2% compared with June 2014.

What about the business surveys?

The official one is not especially optimistic either.

The private-sector measures of sentiment have dipped a little too although as you can see they have tended to be over-optimistic. From the Markit Purchasing Managers Index or PMI.

In July and August, according to the information from business and household surveys, the recovery of the Italian economy is more difficult than expected. Moreover, signals from labour market remain negative…….The projection for Q3 is 0.0% (q-o-q) with a band interval ranging from -0.2% to 0.2%.

The retail sector seems to be firmly under pressure as the August reading of 40.8 (50=unchanged) is the sort of number associated with Greece.

Italy dipped back into contraction territory in August, halting a seven-month sequence of expansion. The weakness in Italy was mainly centred on services, where business activity and new orders both fell, while manufacturing saw a sharp growth slowdown.

Italian retail sales fell further in August, with the rate of decline having sharpened to the fastest in nine months.

Deflation and disinflation

The latest consumer inflation numbers were reported thus.

This disinflation that is seping into consumer inflation already exists elsewhere in the Italian economy. Below are agriculture and industry respectively.

In August, preliminary estimates of the yearly rate of change in the CPI registered the new minimum since the last 50 years.

In August 2014, according to preliminary estimates, the Italian harmonized index of consumer prices (HICP) decreased by 0.2% compared both with the previous month and with August 2013 (in July 2014, the annual rate of change was equal to zero).

As you can see there is a danger that Italy will be seeing both falling output and falling prices which is what I define as deflation. This is particularly dangerous if you have debts to repay.

In the second quarter of 2014: the Output price index decreased by 4.3% compared to the previous quarter, and by 4.8% in comparison to the same period of the previous year;

The index decreased by 1.6% compared with June 2013 (-1.9% on domestic market and -0.3% on non-domestic market).

The national debt

This morning’s update from the Bank of Italy tells us that as of the end of the national debt of Italy had rsien to 2.169 trillion Euros. The ratio of this to economic output or GDP edges ever nearer to 140% which is ever more awkward for the Euro area authorities who established 120% as a benchmark and indeed threshold in the Greek crisis.

There is a reason why this pack of cards has not toppled and in fact has appeared to step back from the brink and that is the rally in Italain govenrment bonds. Right now Italy courtesy of the policies of the ECB can borrow new funds extremely cheaply. Her five-year bond yield is a mere 1.13% and her ten-year is 2.46%. So whilst the debt burden grows the cost of financing it has benefitted substantially and the sword of damocles goes back into its sheath. But it looks ever more likely that Italy will be forced to have some form of default going forwards. The only real cure would be some economic growth precisely the thing which has been in rather short supply for the whole of this century so far.

Comment

A postscript to this is provided from Girlfriend in a Coma where two Italian graduates from Grargano, Puglia. discuss this.

When you are born in southern Italy, the prospect of “leave or stay” is inculcated in you, bitterly.

They make a film describing the beauty of the place but below is the end result.

In the end you have both left. So the solution is to run away?

The E word or emigration seems to be replacing the population growth of the past and of course it too fits badly with the growth of the national debt. Especially if you consider that it is the educated and talented who are most likely to depart.

On the other side of the coin is the fact that Italy does have private-savings and a substantial black economy. I have written many times now that it needs to deploy as much of both as it can but sadly there is little sign of reform. The whole situation looks ever more like some form of slow-motion car crash.'

How long before the North wants a vote on independence?

Edited September 12, 2014 by Sancho Panza

[The Masked Tulip]

I bet the average Italian is better dressed than the average Brit though...and also less stressed sitting around those coffee bars looking at smartly dressed female bottoms... and that is just the ladies...

Here we slog, slog, slog and pay high, high, high for crap, crap, crap...

[durhamborn]

Id gladly take Italy any day,singers like Annalisa Scarrone and Guisy Ferreri,

Guisy Ferreri,

Who cares about economics)

[South Lorne]

..the last phrase sums it up for the whole of the Euro.... and not just Italy......

"The whole situation looks ever more like some form of slow-motion car crash."

[zugzwang]

..the last phrase sums it up for the whole of the Euro.... and not just Italy......

"The whole situation looks ever more like some form of slow-motion car crash."

It's not just Italy or Euroland, growth is faltering everywhere.

[Executive Sadman]

Cant remember the last time I saw a newish (ie 62 plate or newer) fiat...

[Roman Roady]

Just finished a job ib central europe. An Itallian colleague had many horror stories about unemployment (18 month delay in payment etc). He had given up on Italy and the EU. We used to visit Italy and the place looks tatty...Italians in general not a happy bunch at the moment.

[Saving For a Space Ship]

Id gladly take Italy any day,singers like Annalisa Scarrone and Guisy Ferreri,

Guisy Ferreri,

Who cares about economics)

I'll raise you some retro....

Just finished a job ib central europe. An Itallian colleague had many horror stories about unemployment (18 month delay in payment etc). He had given up on Italy and the EU. We used to visit Italy and the place looks tatty...Italians in general not a happy bunch at the moment.

time to change avatar ?

Edited September 13, 2014 by Saving For a Space Ship

[South Lorne]

It's not just Italy or Euroland, growth is faltering everywhere.

...forecasts for the UK pre Scottish referendum are positive ..as is the USA....Germany and France are both heading for the negative doldrums .......

[copydude]

I bet the average Italian is better dressed than the average Brit though...and also less stressed sitting around those coffee bars looking at smartly dressed female bottoms... and that is just the ladies...

You got it in one, MT. My experience of living in a small town in Southern Italy - pop.30,000 - is that Italians have quite a different set of priorities from the average European consumer.

1. They don't shop enough. Church on Sunday means there are only six shopping days a week. And on weekdays, it is an 8/6 economy rather than 24/7. Shops are invariably closed at lunchtime, which can be from 12 - 5. Many cafes are closed at lunchtime too.

2. They don't charge enough. The absolute most I could pay for a glass of wine on the terrace was 2 euro 50 . . . and it would be served with crisps, nuts and pizza nibbles.

3. It's a magnolia free zone. I think a poster here described Italy as 'tatty'. Sorry, peeling stucco and weeds flowering in the roof are all part of the antique charm. There is no homebase/DIY culture. Waste of pretty bottom time.

4. No sense of (fuel) duty. The most popular form of transportation for young families is three up on the back of a scooter. (Bambino in the middle, no crash hat.) Occasionally, the oddball yuppie couple may splash out on a Fiat Seicento . . . 900cc, 66mpg. It's revenue terrorism.

5. Italians are not economic migrants, that is a myth. In Sicily, it is simply far too hot to work and anywhere up to Naples the Ukrainians have all the jobs.

So, what do Italians do with their disposable income? Anything left over they donate to the church and, after that, anything left over is donated to the mafia to finance their frequent funerals.

It is a mistake to apply any EU economic model to Italy and the only solution is to devalue the lira every year, which worked perfectly.

Edited September 14, 2014 by copydude

[spyguy]

You got it in one, MT. My experience of living in a small town in Southern Italy - pop.30,000 - is that Italians have quite a different set of priorities from the average European consumer.

1. They don't shop enough. Church on Sunday means there are only six shopping days a week. And on weekdays, it is an 8/6 economy rather than 24/7. Shops are invariably closed at lunchtime, which can be from 12 - 5. Many cafes are closed at lunchtime too.

2. They don't charge enough. The absolute most I could pay for a glass of wine on the terrace was 2 euro 50 . . . and it would be served with crisps, nuts and pizza nibbles.

3. It's a magnolia free zone. I think a poster here described Italy as 'tatty'. Sorry, peeling stucco and weeds flowering in the roof are all part of the antique charm. There is no homebase/DIY culture. Waste of pretty bottom time.

4. No sense of (fuel) duty. The most popular form of transportation for young families is three up on the back of a scooter. (Bambino in the middle, no crash hat.) Occasionally, the oddball yuppie couple may splash out on a Fiat Seicento . . . 900cc, 66mpg. It's revenue terrorism.

5. Italians are not economic migrants, that is a myth. In Sicily, it is simply far too hot to work and anywhere up to Naples the Ukrainians have all the jobs.

So, what do Italians do with their disposable income? Anything left over they donate to the church and, after that, anything left over is donated to the mafia to finance their frequent funerals.

It is a mistake to apply any EU economic model to Italy and the only solution is to devalue the lira every year, which worked perfectly.

Sort of. I've only dabbled with Northern Italians. Most of those regard places belowe Milan as African, probably with some justification.

The Northern Itialian economy has not been great since the mid to late 80s.

The odd bits have been doing well but youth unemployment has been piling up for 25 years.

A lot of Italian firms crumpled when China cranked up their exports.

Even in the North, the economy is very regulated - everything required a permit, which you either inherit or pay mega bucks for.

The reason Germany keeps banging on about economic de-regulation, and the reason why Italians never do it is the permit.

You can laugh, but imagine if Germany started banging on about high real estate prices in the UK, and how they must be de-regulated to make the economy more efficient.

Oh, like Durhamborn, I've a thing for Northern Italian girls. They tend to pretty cool and glad you are not an italian boy.

And they look down on Southerners too.

[zugzwang]

...forecasts for the UK pre Scottish referendum are positive ..as is the USA....Germany and France are both heading for the negative doldrums .......

China, Japan, Russia, Brazil? All in deep trouble. The UK is borrowing 10% of GDP every year to generate 1-2% growth, utterly absurd. The US economy has grown at 1.5%-2.0% for the last six years, not even keeping pace with the increase in population.

[copydude]

China, Japan, Russia, Brazil? All in deep trouble. The UK is borrowing 10% of GDP every year to generate 1-2% growth, utterly absurd. The US economy has grown at 1.5%-2.0% for the last six years, not even keeping pace with the increase in population.

Of course. That is why we need the return to domestic economies and dropping out of the EU and globalist corporatism. Not only do we boost local production but our economies will gain 120 plus billion a year alone from dumping Brussels.

I did notice a distinct shift in Italy towards 'Made In Italy' . . . and why not.

spyguy wrote:

Oh, like Durhamborn, I've a thing for Northern Italian girls

Whatever, they certainly have not yet been regulated into blandness by the EU.

I took some random pictures in the street one afternoon . . . whether you find Italians attractive or not is personal taste, but you have to admit they have style.

Bottom line: f*ck the EU and capitalise on our national talents.

[winkie]

[stuckmojo]

I was born in Sondrio (North Italy - 20 minutes to Switzerland), so I believe I qualify for a comment.

South Italy: Copydude, I agree with your description. There is still a lot of family capital in housing, savings and the cost of living can be quite low when you dodge taxes and get everything else free from the state. Ambitious young people, as well as the desperate ones, tend to leave. It used to be towards the North, but now that the North is in the shit too, they leave for England, Germany or Spain. I've seen quite a few working in bars here in Singapore.

North Italy: Spyguy, again I'd agree with your comments; the Italian economy peaked in the late 80's, with Milan being the de-facto capital and its economic epicentre. It's gone massively downhill since, due to both ultra-restrictive regulation which you either pay for or inherit, and fierce competition from the emerging markets. It doesn't help that a lot of the competitors were actually created by Italian companies setting up shop abroad to avoid Italian bureaucracy.

There is also a not-so-well known reason for Italy being in such a bad way. It's to do with its aging managerial class, who still live in the 80's, cannot let go and only promote people on the basis of length of service, when not for nepotism. The Italian boomers are now too poor to retire and their kids are in their 40's still living with them or in a temp job at 1,000 Euros per month. \

I left over 10 years ago and I know for a fact I can never go back there to work. Ironically, I do get offers at executive level because of my experience, all of which is abroad.

Things are going to get a lot worse before they get better for Italy.

Edited to add: Italian women: don't even think about it. What you see is NOT what you get. Believe me, avoid at all cost.

Edited September 15, 2014 by stuckmojo

[spyguy]

Edited to add: Italian women: don't even think about it. What you see is NOT what you get. Believe me, avoid at all cost.

Over the years, Ive had a few (3) Northern Italian gfs.

Never in Italy mind. And I've only been back with one to meet her family.

Boys are spoilt by their Mum/family.

GIrls are spoilt by their Dads.

You should avoid any girl who has not lived away from here family, this normally means lived in the UK or France, but normally England. Most of those types will be reasonably aware of how bad the situation is.

Some are relatively rational - a few I know (not gfs) have come up with a new twist of the old stragegy - 'I will not have a pension. I need to have a few kids to support me in my old age. I need to have kids with an English man'

They were not saying that for me (Im british) but rather they see no future in Italy and need to get an economic foothold elsewhere. They don't like the sound of German and WWII is still an issue in the North East. They don't see much point in France, which they see as a country with similar problems to Italy, just 10 years behind. They also see speaking English as an escape route.

Socially, Italy is very repressive; everyone's beaten into shape - think Saudi Arabia without the stoning.

There's loads of unspoken rules that govern expected behaivour, dress, sucking up etc.

[spyguy]

I left over 10 years ago and I know for a fact I can never go back there to work. Ironically, I do get offers at executive level because of my experience, all of which is abroad.

Edited to add: Italian women: don't even think about it. What you see is NOT what you get. Believe me, avoid at all cost.

20+ years ago you would be unemployable in Italy. Your exposure to non-Italian business methods would mean you would 'not know how to do business the Italian way'. And you would not have spent those 10 years working for pennies - or less - to build up 'goodwill' that would have been flipped - minus a cut - to you in yours 40s.

Strange how things change.

[chronyx]

Edited to add: Italian women: don't even think about it. What you see is NOT what you get. Believe me, avoid at all cost.

Spike Milligan had an excellent quote along the lines of "Once italian women hit 40 a grenade goes off in the their stomachs"

[spyguy]

Spike Milligan had an excellent quote along the lines of "Once italian women hit 40 a grenade goes off in the their stomachs"

Not the Italian women I know.

[zugzwang]

OECD slashes 2014 growth forecasts for US, Japan, Germany, Italy.

Here we go.

http://online.wsj.com/articles/oecd-cuts-economic-growth-forecasts-1410771922

Sept. 15, 2014 5:05 a.m. ET

The Organization for Economic Cooperation and Development Monday cut its economic growth forecasts for the U.S. and other large developed economies, and said the continued weakness of the recovery demonstrated the need for significant changes in economic policy.

The Paris-based research body warned that economic growth could prove to be even more disappointing in 2014 and 2015, given an array of risks that include conflicts in Ukraine and the Middle East, the Scottish independence referendum, and the possibility of major shifts in financial flows and sharp exchange-rate movements as investors prepare for a tightening of U.S. monetary policy that is expected next year.

But the OECD said the eurozone is once again the most worrisome threat to global growth prospects, with very low inflation rates holding back demand and employment, and increasing the risk of a slide into deflation, or a period of self-reinforcing price falls.

In a partial update to its twice-yearly forecasts for economic growth, the OECD cut its 2014 projections for each member of the Group of Seven largest developed economies. It said it now expects the U.S. economy to expand 2.1% this year, having forecast growth of 2.6% in May, while it expects the eurozone economy to expand by just 0.8%, having forecast growth of 1.2% in May.

It reserved its biggest recalibration for Italy, and now expects that nation's economy to contract by 0.4% in 2014, having estimated it would grow by 0.5% in May.

"The global recovery from the crisis has been inadequate in several ways," the OECD said. "Economic slack has persisted, potential growth has slowed, and inequality has risen. Meanwhile, external imbalances and threats to financial stability have remained."

Among large developing economies, the OECD left its growth forecasts for China unchanged, raised its forecasts for India and cut its forecasts for Brazil.

[TheCountOfNowhere]

I bet the average Italian is better dressed than the average Brit though...and also less stressed sitting around those coffee bars looking at smartly dressed female bottoms... and that is just the ladies...

I love Italy.

[Sancho Panza]

OECD slashes 2014 growth forecasts for US, Japan, Germany, Italy.

Here we go.

http://online.wsj.com/articles/oecd-cuts-economic-growth-forecasts-1410771922

'But the OECD said the eurozone is once again the most worrisome threat to global growth prospects, with very low inflation rates holding back demand and employment, and increasing the risk of a slide into deflation, or a period of self-reinforcing price falls.'

Stunning comment.

[stuckmojo]

20+ years ago you would be unemployable in Italy. Your exposure to non-Italian business methods would mean you would 'not know how to do business the Italian way'. And you would not have spent those 10 years working for pennies - or less - to build up 'goodwill' that would have been flipped - minus a cut - to you in yours 40s.

Strange how things change.

Your comment is bang on the money. In some businesses - forget the public sector - things are still like that

[durhamborn]

One of my main "too do" things was to spend all week at the San Remo festival in Italy.Tickets for all the nights etc etc, but have never got around to sorting things out.Getting hold of tickets might also be a problem, or at the least a very expensive exercise.

[disenfranchised]

Spike Milligan had an excellent quote along the lines of "Once italian women hit 40 a grenade goes off in the their stomachs"

At least you get 22 years of finery

The grenade has already gone off in most of English womanhood. Bits of London & other cities have a worthwhile percentage of lookers, but the provinces are full of overweight screeching heffers.