Perspectives

A brighter scenario

th  
11  
EcoPerspectives // 1 quarter 2018  
economic-research.bnpparibas.com  
Italy  
A brighter scenario  
Domestic demand remains the main driver of the Italian recovery. Investment rebounded, rising by 3% in Q3 2017, and private  
consumption moderately increased. Strong demand from non-EU countries sustained Italian sales abroad, with a positive  
contribution of net exports to the overall growth. In 2018, as well as in 2017, the economy is expected to increase by about 1.5%.  
Micro-firms in Italy remain the backbone of the productive system: they account for 95% of total firms (97% in services), employ  
46.8% of total workers (ranging from 23.1% in industry to 66.7% in construction) and produce 29.7% of total value added (52% in  
construction).  
During the second half of 2017, the Italian economy has further  
recovered. In Q3, real GDP rose by 0.4% q/q and by 1.7% y/y, the  
strongest figure since the beginning of 2011. As a similar pace of  
growth is expected in Q4, in 2017 as a whole, real GDP is estimated  
to have increased by slightly more than 1.5%.  
1- GDP growth and inflation  
GDP Growth (%)  
Forecast  
 Inflation (%)  
Forecast  
1.6  
Widespread recovery  
1.5  
1.5  
1.4 1.4  
1.1  
0.9  
In Q3, the economic recovery resulted widespread. While domestic  
demand excluding stocks was the main driver of growth, adding  
0.8  
0.1  
0.7% to the overall increase, also the contribution of net exports  
became positive (+0.2%, from -0.4% in Q2), as exports rose more  
than imports (respectively +1.6% and +1.2%), benefiting from the  
improvement of the global scenario. In 2017, Italian sales abroad  
accelerated, sustained by a strong demand from non-EU countries,  
with exports to China and Russia increasing by more than a fifth and  
those to the United States by almost 10%.  
-
0.1  
1
5
16  
17  
18  
19  
15  
16  
17  
18  
19  
Sources: National accounts, BNP Paribas  
2
- Labour market  
Number of persons in work (thousands)  
During last year, manufacturing activity gained strength. In Q3,  
value added rose by 1.7%, after +1.3% in Q2. From January to  
November, production rose by more than 7% in the pharmaceutical  
products sector, by almost 6% in that of means of transport, and by  
about 3% in that of machinery and equipment and in that of metal  
products. Instead, the construction sector has continued to suffer. In  
Q3, value added of construction rose by 0.4%, after -0.4% in Q2,  
remaining more than 30 percentage points below the pre-crisis level.  
2
3.4  
2
3.179  
2
3.183  
23.2  
2
3.0  
2.8  
2
22.6  
2.4  
22.2  
2.0  
2
Moderate increase of private consumption  
2
2.119  
2
In Q3 2017, private consumption rose by 0.3%, with a 0.2% positive  
contribution to the GDP growth. Expenditure on durable goods  
rebounded (+2.3% from -0.5% in Q2), while that on non-durable  
goods further declined. Spending on services (more than half of  
total) recorded the seventeenth consecutive increase.  
0
4 05 06 07 08 09 10 11 12 13 14 15 16 17  
Source: Istat  
Since the beginning of the crisis, the evolution of private  
consumption has resulted stronger than that of disposable income.  
To cope with the new scenario, Italian households have significantly  
reduced their propensity to save, from about 12% in 2008 to around  
In recent times, Italian households have benefited from the  
improvement of labour market conditions, despite still mixed signals.  
The unemployment rate fell to 11%, with that referred to people  
aged 15-24 years declining to 32.7% from almost 40% at the end of  
8
% in Q3 2017. As a consequence, new financial investments have  
been cut, remaining concentrated in asset management instruments  
as well as in deposits. The value of household financial wealth rose  
above EUR 4.1 trillion, as a result of the appreciation of assets.  
2016. While the number of persons in work rose to almost 23.2  
million, going above the pre-crisis peak, that of hours worked  
remains below the 2008 level. Despite a still disappointing evolution  
of wages, with an annual growth rate stable slightly above 0.5%, the  
positive trend in employment supported the recovery of household  
disposable income (above EUR 280 billion in Q3, the highest value  
in the last twenty years).  
 Strong rebound in investment  
The recovery of the Italian economy also reflects the rebound of  
private investment, which is the result of both fiscal incentives and a  
stronger economic and financial condition of firms, with value added  
rising to almost EUR 200 bn from EUR 175 bn at the beginning of  
th  
12  
EcoPerspectives // 1 quarter 2018  
economic-research.bnpparibas.com  
2
013. The improvement of the overall scenario sustained firms’  
3
- Italian firms by size class  
profitability, strengthening business confidence, which rose to the  
highest level in the last ten years. In Q3, total investment increased  
by 3% q/q, with a 0.5% contribution to the GDP growth. Spending  
on machinery and equipment increased by 6% and that on means of  
transport by 1.9%, after +9.8% in the previous quarter.  
Percent of total, 2015  
4
7
,043,032 firms  
,353,295 employees  
large; 20.6  
micro; 46.8  
Structure and performance of Italian firms  
medium; 12.8  
As the recovery strengthens in Italy it might be useful to assess the  
damages and the changes that the long crisis left behind. The most  
recent official data released by Istat - referred to 2015 - make it  
possible a comparison with 2008, when the Great recession began.  
During this period the number of firms operating in Italy decreased  
by 192,911 units (-4.3%). To a large extent (64%) the decline is due  
to the construction sector (-123,583 units) and the industrial sector  
20,795 firms  
2,018,507 employees  
small; 19.8  
1
3
74,613 firms  
,114,596 employees  
Source: Istat  
(
-61,651 units, 32% of total decrease). In the services sector the  
reduction is less noticeable (7,677 units less than in 2008).  
medium-sized firm and the EUR 95,900 by a large one. The  
differences are less marked in the service sector.  
In the seven years considered, 99.1% of the loss involved firms with  
less than 50 persons employed, and 80.2% affected firms with fewer  
than ten employees. Among the medium-sized enterprises there are  
The labour productivity gain that firms experience as they grow is  
conspicuous in particular as micro-firms get bigger. The transition  
from the micro size to the small one determines on average about  
1,696 firms less than in 2008, while among the large ones only 36  
are missing.  
50% increase of the value added per person employed. The labour  
As a consequence of these changes, the decrease in the number of  
persons employed experienced by the Italian productive system  
along the period analyzed (overall: about 1.6 mn) has involved  
mainly small and micro-enterprises, which lost about 1.5 mn  
workers (91.4% of total). Medium-sized firms saw their workforce  
decrease by 151,000 employees, while the large ones went the  
other way round, increasing employment by 18,300 units. The  
combination of these trends has left the average size of Italian  
companies almost unchanged, with the exception of large  
companies, which increased their average size from 918 employees  
in 2008 to 931 in 2015.  
productivity gain grows at a decreasing rate as firms get bigger:  
moving from the medium size to the large one, the value added per  
person employed increases by about 15%.  
In Italy, in all size classes, exporting firms are larger and more  
productive than those that operate only on the domestic market. As  
mentioned before, in manufacturing the average size of a company  
in Italy is slightly higher than nine persons employed, in the case of  
exporting firms it raises up to 28, a size similar to German  
manufacturing firms. Finally, export propensity and productivity are  
highly related: in each size class exporting firms’ value added per  
employee is 40-55% higher than in non-exporting counterparts. The  
largest gap is observed among micro-firms: on average exporters  
produce EUR 39,400 value added per person, 57% more than  
domestic micro-firms and 2.7% more than domestic small firms. The  
productivity gap is considerable also among large firms.  
The change in the number of firms and persons they employ during  
the period 2008-2015 left unchanged the contribution of each size  
class to total employment and total value added. Micro-firms remain  
the backbone of the Italian productive system: they account for 95%  
of total firms (97% in services), employ 46.8% of total workers  
(
ranging from 23.1% in industry to 66.7% in construction) and  
Paolo Ciocca  
paolo.ciocca@bnlmail.com  
produce 29.7% of total value added (52% in construction).  
On average, Italian firms are smaller than in most European  
countries. The average size of firms in Italy (3.7 persons employed  
per unit), compares with 4.5 in Spain, 5 in France and 11.7 in  
Germany. In the manufacturing sector, the gap is even larger.. In  
particular, large Italian firms, especially in the manufacturing sector,  
are significantly smaller than their European counterparts: in France,  
on average, a large manufacturing firm employs 311 workers more  
than a large Italian firm, in Germany 211, while in Spain the distance  
is much lower (approximately 12 persons employed more than in  
Italy). The latest data confirm a structural productivity gap between  
micro- and large firms in every sector. In the industry sector, a  
micro-firm produces EUR 33,200 value added per persons  
employed, significantly less than the EUR 75,400 produced by a  
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