Perspectives

A domestic recovery

th  
11  
EcoPerspectives // 4 quarter 2017  
economic-research.bnpparibas.com  
Italy  
A domestic recovery  
During the first part of 2017, domestic demand remained the main driver of the continued recovery which is spreading across sectors  
and becoming more sustainable. Consumer and business confidence has improved. The government has recently approved the  
Economic and Financial Document, expecting GDP to grow by 1.5% both in 2017 and 2018. This would allow the budget deficit to GDP  
to narrow to 1.6% of GDP at the end of next year. In June 2017 employment reached the threshold of 23 million, almost back to pre-  
crisis levels. As for the labour force, there has been a significant shift in the composition by age.  
A more widespread recovery  
1
- GDP growth and inflation  
 GDP Growth (%)  
Forecast  
During the first part of 2017, the economic recovery continued,  
spreading across sectors and becoming more sustainable. In Q2,  
real GDP rose by 0.3% q/q, after +0.5% in the previous quarter. The  
annual growth rate accelerated to 1.5%, the highest in the last six  
years. Should GDP remain unchanged in the second half of the year,  
the 2017 annual performance would be 1.2%.  
 Inflation (%)  
Forecast  
1.4  
1.4  
1.4  
1.1  
1
.0  
0.9  
0
.8  
While suffering from the persistent stagnation in the construction  
sector, which value added remains down by more than  
0.6  
0.1  
3
0 percentage points from the pre-crisis level, the Italian economy is  
benefiting from the improvement of conditions in the manufacturing  
industry. From January to July, production rose by more than 6% y/y  
in the sector of means of transport and in that of pharmaceutical  
products and by almost 3% in that of chemical products. In the  
services sector, value added has further recovered, almost reaching  
the 2008 value.  
-0.1  
15  
16  
17  
18  
19  
15  
16  
17  
18  
19  
Sources: National accounts, BNP Paribas  
2- Growth and international trade  
Q1 2013=100  
The government has recently approved the Economic and Financial  
Document. The plan, which has to be approved by the end of the  
year by the European Commission, is projecting real GDP to  
increase by 1.5% both in 2017 and in 2018. The government deficit  
is projected to narrow from 2.5% of GDP in 2016 to 1.6% in 2018  
and the public debt ratio would decline for the first time in a decade,  
despite remaining elevated.  
 GDP ;  Exports ;  Imports  
120  
115  
110  
105  
A structural change  
Thanks to the significant improvement of the global economy, Italian  
exports have accelerated, after a full year of stagnation. From  
January to July, exports rose by almost 8% y/y, driven by strong  
demand from non-EU countries. Exports to China increased by 26%  
with those of means of transport more than doubled, and exports to  
the US by 10%, which, despite the unfavourable evolution of the  
exchange rate, has become the third market for Italian products.  
Among EU countries, exports to Germany rose by 6.5%, those to  
France by 4.2% and those to Spain by 11%.  
100  
95  
2013  
2015  
2017  
Source: Istat  
imports to consumer goods consumption has increased to more  
than 20% and that on investment on machinery above 30%.  
Despite this positive evolution, the recovery of the Italian economy  
has been restrained by the negative contribution of net exports,  
which subtracted 0.7 pp from the overall growth in the last three  
years. Since Q1 2013, exports rose by 14.5% while imports were up  
by almost 20%, partly explaining the limited GDP growth. As a  
consequence of the legacy of the crisis, the Italian economy seems  
more dependent on imports to satisfy domestic demand. The ratio of  
Increasing domestic demand  
In the first half of 2017, domestic demand remained the main driver  
of growth. Households’ confidence has significantly improved, as  
labour market conditions have further strengthened. The number of  
persons in work rose above 23 million, almost entirely recovering  
what had been lost during the crisis, and the unemployment rate  
has fallen slightly above 11%. In Q2 2017, private consumption rose  
by 0.2%, after +0.6% in the previous quarter. Expenditure on  
The bank  
for a changing  
world  
th  
12  
EcoPerspectives // 4 quarter 2017  
economic-research.bnpparibas.com  
services rose by 0.6%, while that on durable goods declined, after  
having significantly grown since the beginning of 2013.  
3
- Labour force partition ratios  
Percent change, 2017 vs. 2008  
As a consequence of the better economic scenario, business  
confidence improved, reaching the highest value in ten years. After  
the decline recorded at the beginning of the year, capital  
accumulation resumed growing, buoyed by fiscal incentives. In Q2,  
investment on means of transport rose by about 9%, while that on  
construction newly suffered, remaining almost 40 pp below the pre-  
crisis level.  
80  
60  
40  
20  
0
Labour force above the pre-crisis level  
In Italy, the recovery goes hand in hand with significant  
improvements in the labour market. In particular, the growth rate of  
the labour force is rising: it is up 3.9% since Q2 2008, approaching  
-20  
15-24  
25-34  
35-44  
45-54  
55-64  
65 +  
2
6 million. In other words, nearly one million joined the labour  
Source: Istat  
market since 2008. Since the beginning of the great recession, while  
growing at half the average rate of the previous ten years (1999-  
Like other OECD countries and over the last thirty years, Italy  
experienced a contraction of medium-skilled jobs. In most recent  
years, however, the Italian labour market has shown some  
peculiarities: between 2008 and 2017 the decrease in the share of  
medium-skilled positions has been accompanied by a decline in  
high-skilled jobs. Over the same period, the proportion of low-skilled  
jobs has risen from 20.4 to 28.1%, due to an increase in the number  
of employees in low-productivity services: waiters, bartenders,  
tourist guides, hairdressers, chefs, cleaners and security personnel,  
and (especially) sales personnel. A comparable increase in the  
weight of low-skilled jobs in the same period was recorded only in  
Greece.  
2
008), the Italian labour force has been going through a process of  
reconfiguration which led to a dramatic increase in the older  
component. In 1999, Italians under 45 were the majority: 69%, while  
the elderly (over 65) accounted for just 1.5% of the total labour force.  
However, the share of under 45 has progressively decreased over  
the years (it was 63.2% in 2008), reaching 51.8% in 2017 (against a  
weight of older that rose to 2.3%). This shift strongly penalised the  
population of 25-34-year-olds, that in 2017 represents 19.1% of the  
total labour force while it was 29.7% in 1999.  
Total employment reached the threshold of 23 million, almost  
completely recovering from the crisis. Meanwhile, there has been a  
significant shift within the age breakdown of the labour force:  
currently, workers older than 45 represent 50.5% of the employed  
population, compared to 37.2% in 2008. Over the same period, the  
According to the OECD, approximately 9% of current job positions  
in developed countries are likely to disappear over the next few  
years due to the growing automation process. Italy shows values in  
line with the OECD average; however, if we consider the wider  
group of jobs that are expected to undergo significant changes in  
the tasks because of an increasing use of technology, Italian values  
are much higher: about 35% vs. 25% of the OECD average.  
25-34 year-olds share went down from 24.7 to 17.9%.  
The increase in employment was largely due to the rise in part-time  
jobs: according to Istat data, regardless of the contractual form (i.e.  
whether permanent or temporary contracts), between 2008 and  
2017 the share of part-time jobs rose from 14.7 to 18.7%. Part-time  
workers are currently 912 000 thousand more than in 2008. In most  
cases, part-time work is involuntary: according to the OECD, the  
percentage of part-time workers who would like to have full-time  
positions in Italy has gone up from 38.2% in 2007 to 62.5% in 2016.  
This rate puts Italy at the third place among the developed countries  
ranks third, right after Greece and Slovakia. For this reason,  
employment measured in full time equivalent positions (which  
aggregates hours worked by set of part-time workers) is still below  
the pre-crisis level (-4%), and so is the total number of hours worked  
Paolo Ciocca  
paolo.ciocca@bnlmail.com  
Simona Costagli  
simona.costagli@bnlmail.com  
(
-5%).  
While the proportion of fixed-term contracts is in line with the euro  
area average the share of independent workers (i.e. people who  
provide services to firms through external collaboration) is  
particularly high in Italy. Despite a sharp decline (-10.7% since  
2008), this type of employment involves about one worker out of  
four.  
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