Berlusconi Drags Italy into 3-Year Recession

  • Italy is the only leading country forecast by the IMF to be facing three consecutive years of contraction (FT)
  • GDP fell 1% in 2008
  • Q4 activity contracted by 1.9% qoq. Leading and sentiment indicators suggest Q1 contraction will be as severe as Q4
  • Mar 4: Senior official of the Bank of Italy said the 1.8% contraction in Q4 2008 pointed to a fall in GDP of 2.6% in 2009, althugh this was not an official forecast
  • Global Economy Matters (Jan 16): Italy slides into its worst recession since 1975. After a sharp downturn in H2 08, the economy is expected to shrink 2% in 2009, and then expand 0.5% in 2010, according to a revised forecast by the Bank of Italy
  • Societe Generale (Jan 14): Crisis affects transversally all classes of goods, with intermediary, equipment and durable consumption goods particularly hit. In the districts of Turin and the North-East, the deterioration is most evident
  • Dec 30: ISAE via FT: Italian business confidence is at its lowest ebb in nearly 20 years–> The institute???s index of business confidence was 66.6 in December, the lowest level it has reached since ISAE began compiling data in 1991. The index is now at a level not plumbed even during the recession of the early 1990s, which caused a big shake-out of Italian manufacturing industry and that saw a break-up of ERM
  • BNP: It is the fourth technical recession in less than 10 years. These results are in line with the latest industrial output datas (-2.1% m/m in September) and the business survey indicators. The activity is expected to decrease in the next quarters. In 2009, GDP is likely to fall by more than 1.0%, after -0.2% in 2008. Only public consumption should grow next year.
  • EU Commission Autumn 2008 forecast: The marked slowdown of real GDP growth in Italy has already been under way since mid 2007, prior to the euro area peers and well before the deepening of the financial market crisis. It turned into a contraction as of Q2 2008
  • cont.: The main driver of the negative developments is domestic demand. The external sector is suffering from deteriorating cost competitiveness
  • Foreign trade main growth contributor, Germany most important trading partner. Poor productivity performance, lack of competitiveness and adverse specialization are main drawbacks in addition to dismal liberalization and structural reform record