Perspectives

A long lasting stagnation

th  
14  
EcoPerspectives // 4 quarter 2019  
economic-research.bnpparibas.com  
Italy  
A long lasting stagnation  
The new Government has approved the update of the economic and financial document, planning to raise the deficit to 2.2% of GDP  
in 2020. The 2020 Budget Law is estimated to amount to EUR 30 bn. Some measures contained in the budget, such as the cut of the  
fiscal wedge, are expected to sustain the economy with a positive effect on growth, despite an increasing uncertainty. In Q2, GDP  
increased by 0.1 y/y, as stocks negatively contributed to the overall growth, while exports continued to rise. Domestic demand  
suffered from the mixed evolution of labour market and the further delay of the full recovery of the housing market.  
A new Government coping with old problems  
1- Growth and inflation  
After the August political crisis, a new coalition between the Five  
Star Movement and the Democratic Party has been formed. The  
new Government, still chaired by Giuseppe Conte, has approved  
the update of the economic and financial document. In 2020, the  
Government plans to raise the deficit to 2.2%, from 1.4% expected  
under the current legislation. The 2020 Budget Law, which will be  
approved by the end of the year, is estimated to amount to  
EUR 30 bn. The deactivation of the safeguard clauses on indirect  
taxation will cost EUR 23 bn. Other measures contained in the  
budget, such as the cut of the fiscal wedge and the confirmation of  
business incentives for high-tech investment, are expected to  
sustain the economy. In 2020, GDP is now forecasted to increase  
by 0.6%, despite an increasing uncertainty.  
GDP Growth (%)  
Inflation (%)  
Forecast  
Forecast  
1.8  
1.4  
1.3  
1
.2  
0.7  
0.6  
0.5  
0.1  
0
.0  
-0.1  
16  
17  
18  
19  
20  
16  
17  
18  
19  
20  
Source: National accounts, BNP Paribas  
2- Labour market  
A persisting stagnation  
In the last one year and a half, the Italian economy has lost  
momentum. In Q2 2019, real GDP slightly increased (+0.1% both  
q/q and y/y). The breakdown of GDP data was mixed. For the fourth  
quarter in a row, stocks negatively contributed to the overall GDP  
increase (-0.2%), offsetting the positive support of domestic demand.  
Consumption continued to increase moderately (+0.1% q/q), also as  
a consequence of the still mixed evolution of labour market. In Q2,  
employment rose above 25.5 million, while the number of hours  
worked declined, (more than 500 million below Q1 2008). Capital  
expenditure rose by almost 0.4% q/q, as a result of a strong  
increase of investment in machinery and equipment, while  
construction investments declined.  
Hours worked (mns, lhs)  
Employment (mns, rhs)  
25.6  
1
1 600  
1 400  
1 200  
25.4  
1
1
25.2  
25.0  
24.8  
24.6  
24.4  
11 000  
1
0 800  
0 600  
1
10 400  
24.2  
2
008 2010 2012 2014 2016 2018 2019  
In Q2, the contribution of net exports was positive, as exports rose  
more than imports. Although increasing, Italian sales abroad suffer  
from the uncertainty of the global outlook. According to trade  
balance data, in the first seven months of 2019, the value of exports  
rose by 3.2% thanks to a strong increase in the sector of  
pharmaceutical products (+28%), in that of food products and in that  
of textile products and clothes, while exports of means of transports  
declined by almost 5%. Italian firms benefited from a solid demand  
from the US (+9.2%) and from the UK (+8.9%), while sales to  
Germany significantly slowed (+1.1%).  
Source: Istat  
9
percentage points below the 2008 level. In the first seven months  
of 2019, industrial activity contracted by almost 1%. Given the  
strong relationship with exports, the decline of production had  
broader repercussions in the sector of means of transport, in that of  
textile products and clothes, in that of metal products and in that of  
machinery and equipment.  
In Q2, value added of services has continued to experience only a  
moderate evolution, with the annual growth rate slightly positive  
(
+0.2%). Value added declined by 0.7% y/y in the sector of financial  
The slowdown of manufacturing  
and insurance activities and by 1.1% in that of professional activities,  
while real estate activities rose by almost 1%. From April to June,  
the slow recovery of value added of construction came to a halt,  
declining by 1.1%.  
In Italy, the slowdown of economic activity mainly reflects the  
worsening of conditions in the manufacturing sector. In the last one  
year and a half, value added fell by 1.2%, to more than  
th  
15  
EcoPerspectives // 4 quarter 2019  
economic-research.bnpparibas.com  
Housing market: recovery further delayed  
3- House prices trend  
In Q1 2019, according to Istat estimates, the prices of residential  
properties decreased by 0.8% y/y. A distinctive feature of the long  
period of decline in the Italian real estate sector is the divergence in  
trends between the new homes and the existing ones. During the  
first quarter of 2019, the prices of existing homes fell by 1.3% y/y,  
the ninth consecutive decline in a row, while new housing prices  
rose for the sixth consecutive quarter.  
Total  
New  
Existing  
1
30  
25  
1
120  
115  
110  
105  
On the whole, the decline of house prices from 2010 (first year for  
which official data are available) amounts to 17.2%, totally due to  
existing homes, whose prices at the beginning of 2019 were 23.7%  
lower than they were in 2010. Prices of newly built houses were just  
100  
9
5
0.8% higher than eight years before.  
2012  
2014  
2016  
2018  
2010  
2019  
In the same period (2010-Q1 2019), house prices increased by 48%  
in Germany, in France by 8.6%, while in Spain they decreased by  
about 9%.  
Source: BNL calculations on Istat data  
Should prices in Italy remain unchanged until the end of the year,  
expected to buy a house is slightly decreasing compared to the  
previous year, while the percentage of those who claim to be  
looking for their first home is growing (to 74.8% from the previous  
2019 would record a -0.8% with respect to 2018.  
On the contrary, real estate transactions in Italy have been positive  
for sixteen quarters now. Between January and March 2019  
residential property sales (non-seasonally adjusted) rose by 8.8%  
y/y (from 9.3% in the previous quarter) to almost 139,000 deals.  
Growth was positive in all areas of the country, in particular in the  
North East regions (+11.8% y/y) and in the Central ones (+10.7%  
y/y). Growth was particularly strong (+8.2% y/y) in the eight main  
Italian cities (in terms of resident population). In particular, double-  
digit increases were observed in Rome, (+11.9%), Milan (+11.3%),  
Genoa and Bologna (+15.2 and +12.9% respectively). In Palermo  
transactions slowed to +2% after having recorded a +18.5% at the  
end of 2018.  
6
5.9%).  
Italy remains one of the countries with the highest percentages of  
home ownership in Europe: in 2017 (last data available) 72.4% of  
households owned their own place (a percentage just slightly less  
than that of 2010) compared to 77.1% in Spain (down from 79.8% in  
2010) 64% in France and 51.4% in Germany. The Italian home  
ownership reaches 83% when referred to the richest households  
(those with an income over 60% of the median value) while in the  
case of those with the lowest incomes (less than 60% of the  
median) the rate drops to 52%.  
According to estimates by the Italian Agenzia delle Entrate, in 2018  
Paolo Ciocca  
(
last data available) the combination of a declining price trend and  
paolo.ciocca@bnlmail.com  
an increase in sales led to a +5.2% in house market turnover,  
amounting to EUR 94.3 bn, 53 of which were concentrated in the  
Northern regions. Among the various areas, the largest increase  
was recorded in the North East (+9.4%), while in both the Central  
and Southern regions the increase in turnover barely reached +4%.  
In terms of turnover-per-housing unit, the drop amounted to 2,100  
euros, mainly due to the reduction observed in the Center (-  
5
,200 euros per unit) and in particular in Lazio (-6,250 euros per  
housing unit).  
For the months to come, some qualitative analyses forecast an  
extension of the current sluggish phase: the monthly survey  
conducted last August by the Bank of Italy on the state of the sector  
shows that the share of experts reporting downward pressure on  
property prices remains stable compared to the previous months,  
and so does the margin of discount on offer prices. According to the  
same survey, the share of purchases financed by mortgages is  
growing, exceeding 80%, while the loan to property ratio is stable at  
74.2%. The survey conducted by Nomisma (an Italian think thank)  
on household purchase intentions does not reveal substantial  
changes in the near future: in 2019 the number of households  
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