Wednesday,
August 06, 2008
The
ANNOTICO Report
EMPLOYMENT: Since the mid-1990s
BANKS: There is no sign of
distress in the financial sector as Italian banks and insurance companies have
largely escaped the credit downturn and are now in a solid position.
HOUSING
BUBBLE:
The housing bubble is far less severe than in other countries. Italian
household debt is also far smaller and there is no significant sign of distress
in servicing the debt. This should cushion any possible downturn in spending.
PENSION
REFORMS:
Overly Generous Pensions have long been a drain on the Italian treasury, But Italy has carried out four pension reforms
over the past 15 years. According to European Union risk assessment
methodologies,
FOREIGN
TRADE:
Recent balance of payments data show that Italian foreign trade has held up
rather well despite the slowdown in global demand and the sharp appreciation of
the euro. The goods balance was in surplus in 2007, with a rising surplus in
non-energy products more than offsetting the deficit in energy products.
GLOBALIZATION
EFFECT:
Empirical evidence suggests that Italian industry has successfully
restructured and is now better positioned to face the challenges of globalisation.
Italy is No Longer the Sick Man of Europe
By Lorenzo Codogno
Chief
Economist of the Italian Treasury in
August
4, 2008
It is
with a sense of dij` vu that I read yet another
article since the launch of the single European currency pointing to the risk
that poor economic performance in
It
was published on Tuesday July 30 in this newspaper: 'Growth
slump may force Italy out of eurozone' by Ambrose
Evans-Pritchard, quoting a study by Capital Economics. So now the time has
come to get the facts right.
First,
there is no political party that seriously considers leaving the eurozone as a viable policy option. Not even the Northern
League, which has recently voted in favour of the
Lisbon Treaty and is fully in line with the government's policies on European
issues. Since the euro has not been the source of
The
article suggests that financial markets could set in motion a chain of events
that may force the country to quit EMU due to "an ugly combination of weak
GDP growth, poor international competitiveness, and rising government borrowing
costs". It says that
Since
the mid-1990s
The
employment rate of the working-age population increased from close to 52pc in
the mid-1990s to 58.3pc by early 2008. This rise in labour
utilisation has occurred despite weak real GDP
growth, suggesting that the good performance is probably the result of reforms
implemented over the years.
Recently,
growth has weakened as in most other countries and the economy is expected to
perform poorly in the remaining part of the current year. However, there is no
sign of distress in the financial sector as Italian banks and insurance
companies have largely escaped the credit downturn and are now in a solid
position.
The
housing bubble is far less severe than in other countries. Italian household
debt is also far smaller and there is no significant sign of distress in
servicing the debt. This should cushion any possible downturn in spending.
The
higher cost of labour has not prevented employers
from hiring workers and does not appear to have dented export competitiveness
either. True, wage raises combined with poor productivity have resulted in a
marked worsening of price competitiveness vis-`-vis other eurozone
countries.
How
can a sharp decline in price competitiveness be reconciled with higher export
prices and a general situation for exporters that looks far from desperate?
Special factors such as the regularisation of
immigrant workers and the entry of low-skilled workers into the labour market may have depressed measured productivity and
overstated the loss in competitiveness.
As
the saying goes, the proof of the pudding is in the eating. Recent balance of
payments data show that Italian foreign trade has held up rather well despite
the slowdown in global demand and the sharp appreciation of the euro. The goods
balance was in surplus in 2007, with a rising surplus in non-energy products
more than offsetting the deficit in energy products.
Exporters
have moved to the higher end of the market for traditional products and this
has allowed export performance to be less price sensitive than in the past.
Empirical evidence suggests that Italian industry has successfully restructured
and is now better positioned to face the challenges of globalisation.
Although
the population is ageing rapidly as in most other European countries,
With
the recently approved package of legislative measures -spanning a three-year
period and focusing on spending cuts - the primary surplus will be close to 5pc
of GDP in 2011, together with a balanced budget and a debt-to-GDP ratio below
100pc. This leaves
The
recently approved package of measures addresses not only fiscal sustainability
but also introduces draft legislation to tackle a wide range of issues
connected with the
The
Italian economy is going through a difficult time both from a structural and a
cyclical point of view. There is no doubt that medium-term prospects remain
challenging. Productivity growth is still disappointingly low. However, there
have been encouraging signs of improvement.
Lorenzo
Codogno is chief economist of the Italian Treasury in
Rome
The
ANNOTICO Reports Can be Viewed (With Archives*) on:
Blog:
www.AnnoticoReport.com
Italia
Italia Mia: www.ItaliaMia.com *
Topix.net:
www.topix.net/world/italy
Annotico
Email: annotico@earthlink.net