Perspectives

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EcoPerspectives // 1 quarter 2019  
economic-research.bnpparibas.com  
Italy  
Risk of recession  
At the end of 2018, Italy and the European Commission agreed on a new 2019 Budget Law, avoiding an Excessive Deficit Procedure.  
The 2019 public deficit has been lowered to 2% of GDP from 2.4% previously planned, and real GDP growth has been revised  
downward to 1% from +1.5%. This is still a challenging scenario as overall conditions in the Italian economy worsened in H2 2018. In  
Q3, GDP fell by 0.1% as investment, both private and public, significantly declined. After the downturn in September, exports in Italy  
recorded a +9.6% y/y increase in October, while they stagnated in November bringing the value of the sales abroad to 427 billion  
euros in the first eleven months of the year.  
In the context of the Stability and Growth Pact, the European  
Commission identified in November 2018 the existence of a  
particularly serious non-compliance in Italy’s 2019 draft budgetary  
plan with European Council recommendations and signalled the risk  
of backtracking on structural reforms.  
1- GDP growth and inflation  
GDP Growth (%)  
Inflation (%)  
Forecast  
Forecast  
1
.6  
1
.5  
A new agreement with the EU  
1
.3  
1.3  
17  
1.3  
1.2  
1
.0  
At the end of last year, an agreement between the Italian  
government and the European Commission was reached, avoiding  
an Excessive Deficit Procedure. Despite the expected slower  
economic growth (+1% in 2019, down from +1.5% previously  
estimated), the public deficit is now planned to be 2%, 0.4% lower  
than in the previous budget draft, and then to decline to 1.5% in  
0
.6  
0
.5  
-
0.1  
1
6
17  
18  
19  
20  
16  
18  
19  
20  
Source: National accounts, BNP Paribas  
2
021. In 2019, the improvement of the public balance is the result of  
both higher revenues (EUR 1.7 bn) and lower expenditures  
EUR 8.7 bn). The scenario for 2020-21 remains challenging as the  
2- Italy: real GDP  
(
q/q %  
reduction of the public deficit mainly reflects the activation of the  
safeguard clauses with annual VAT revenues increasing by almost  
EUR 30 bn.  
1.5  
1.0  
0.5  
0.0  
A risk of recession  
From the beginning of 2014 to the middle of 2018, the Italian  
economy recovered 4.5 out of the almost 10 percentage points lost  
during the crisis. In Q3 2018, real GDP fell (-0.1%), the first  
quarterly decline in almost four years. The annual growth rate was  
-
-
0.5  
1.0  
-1.5  
-2.0  
0.7%, down from 1.7% reached in the middle of 2017. The latest  
data signal the risk of a further contraction in the last quarter of 2018.  
In November, industrial production fell by 2.6% y/y.  
-
2.5  
-
3.0  
Q1-2008  
Q1-2010  
Q1-2012  
Q1-2014  
Q1-2016  
Q1-2018  
In Q3, manufacturing’s value added decreased by 0.5% q/q, virtually  
stagnating from a year earlier. The worsening of economic  
conditions mainly affected those sectors that had strongly sustained  
the economic recovery. Production of pharmaceutical products  
declined more than 6% and that of automobiles almost 10%. For the  
first time since the beginning of 2014, the value added of services  
decreased while that of construction recovered further despite  
remaining more than 30 % below the 2008 level.  
Source: BNL calculations on Istat data  
Italian households suffered from the substantial stagnation of the  
labour market with the number of persons employed virtually  
unchanged in the past six months. In Q3, private consumption  
declined by 0.1%, due to losses in purchasing power and weaker  
consumer confidence, partly related to the fall in asset prices, and  
an increase in (precautionary) savings. Households particularly cut  
back on non-durable goods (-1% y/y), whereas spending on  
services rose moderately.  
Declining consumption and investment  
The Q3 GDP contraction reflected the negative contribution of  
domestic demand, which, excluding stocks, subtracted 0.3 point  
from the overall growth, suggesting a greater degree of caution  
amongst consumers and firms.  
Business confidence has declined to the lowest level of the past  
three years amidst domestic political uncertainty and rising  
geopolitical tensions. The economic contraction has also curbed the  
recovery in firms profitability. In Q3, gross operating income as a  
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12  
EcoPerspectives // 1 quarter 2019  
economic-research.bnpparibas.com  
percentage of value added declined to 41.4%, more than 2  
percentage points lower than two years earlier. Consequently,  
Italian non-financial corporations have further postponed investment  
expenditure - expenditure on machinery and equipment fell by  
almost 3% - while increasing their liquidity buffer with almost  
EUR 360 bn. Moreover, public investment was cut significantly,  
declining in nominal terms more than 10% y/y in Q3. From July to  
September, total gross fixed capital formation subtracted 0.2 point  
from overall GDP growth.  
3
- Italy: exports by destination  
Jan.-Nov. y/y % change  
Switzerland  
Netherlands  
India  
Poland  
Austria  
US  
France  
Germany  
Spain  
United Kingdom  
Japan  
Exports: an uncertain recovery  
Mercosur  
China  
After the downturn in September, Italian exports recorded a +9.6%  
y/y increase in October, while they stagnated in November, bringing  
the value of the sales abroad to EUR 427 bn in the first eleven  
months of the year (+3.5% more than the in same period of 2017).  
Meanwhile, the value of imported goods amounted EUR 391 bn  
euros (+5.7% y/y).  
Belgium  
Russia  
OPEC  
Turkey  
-
15  
-10  
-5  
0
5
10  
15  
Source: Istat  
Amongst the main exported goods, metals and metal products  
recorded a 5.7% y/y increase, pharmaceutical products +8% y/y,  
machinery and equipment +1.9% y/y, food products +3% y/y and  
textile products +3.6% y/y between January and November. Exports  
of means of transport also increased slightly (+0.6%) despite the  
drop in exports of motor vehicles, which fell by 5.8% in the first  
eleven months of the year. In the same period, imports of motor  
vehicles remained basically unchanged (0.1%), thus generating a  
negative trade balance of about 9.8 billion euros for the sector.  
one product abroad, and the vast majority (94%) exports fewer than  
0 products.  
1
In spite of the increasing diversification of the markets served, today  
0% of Italian exporting firms serve no more than two countries, and  
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they all together account for about 4% of Italy’s total exports. This is  
not significantly different from the situation in other countries;  
however, as the size of the firms grows, the diversification of the  
export markets of Italian firms remains rather limited while it grows  
remarkably in France and Germany.  
As far as the destination of Italian goods is concerned, sales to EU  
countries between January and November rose 4.4% while those  
directed to non-EU countries increased 2.4%. As a consequence,  
intra-EU exports during the first eleven months of 2018 reached  
Paolo Ciocca  
paolo.ciocca@bnlmail.com  
5
6.7% of the total of Italian exports, a percentage slightly higher  
than that of the whole of 2017 (55.7%) and of 2016 (55.9%). More  
specifically, amongst the EU countries, Italian exports increased  
considerably to the Netherlands (+12.1%), Poland (+7.4%), Austria  
(
+6.5%), France and Germany (+4.4 and + 4.1% respectively).  
These last two countries remain the main destinations of Italian  
sales abroad with a market share of 10.5% and 12.7% respectively,  
slightly larger than in 2017. Sales outside the EU grew, especially to  
India (+11.9%, which however is still a marginal destination for  
Italian exports), Switzerland (+8.8), and particularly to the United  
States (+6.2% thanks to the +15.8% peak recorded in November).  
Over the years between 2012 and 2016, Italian exporting firms  
gradually increased the average value of exported goods from 1.93  
to 2.02 million euros. This figure stems from an increase in the value  
of merchandise exports during the period (+7.5%) more than double  
that of the number of exporting firms (+3%, corresponding to 5.750  
more units). The phenomenon affected firms of all sizes with the  
exception of those with less than 20 employees.  
In the same period, the average number of countries served per  
exporting firm also rose to 6.2 on average, although the share of  
exporters with only one client remained unchanged after having  
fallen slightly in past years. The (small) increase of the number of  
markets served did not correspond to a greater diversification of the  
products sold, which is still limited: over half of the exporters sell just  
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