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Italy forecast bright 2010

June 18, 2009

Published on FT on June 18 2009

By Guy Dinmore in Rome

Italy’s economy, the eurozone’s third largest, may emerge from recession earlier than expected although timing remains uncertain, the OECD forecast on Wednesday as Italian officials also pointed to promising but scattered signs of recovery.

The Paris-based Organisation for Economic Cooperation and Development said in a 150-page survey on Italy that it had raised its GDP growth forecast for 2010 to 0.4 per cent from a previously estimated 0.4 percent contraction.

But at the same time its outlook for 2009 worsened, with a 5.3 per cent contraction forecast against the last outlook published in March of a 4.3 per cent drop. Italy’s GDP shrank 1.0 per cent last year as it began its worst post-war recession.

“The economy is in a sharp recession, mainly because of external developments linked to the global financial crisis, and there is great uncertainty about the strength and timing of the recovery,” the report said.

Italy’s budget deficit is expected to reach 6 per cent of GDP in 2010, while public debt will approach 120 per cent next year, the OECD said. It commended the centre-right government for aiding lower income families within its severe budget constraints but warned that aid for the car industry “risks resource misallocation”.

While the government is wary about talk of green shoots, officials say some “non-scientific” data indicate that the decline is slowing and that growth will return between the first and second quarter of 2010. Figures cited include use of postal services, road haulage, ports and VAT revenues.

Sace, the state export credit agency, said in a report for the
Financial Times that it remained cautious.  “It is too early to say
whether this is the end of the slump or the beginning of the recovery,”
Sace said, pointing to the “good news” of moderate improvements in
business and consumer confidence in April.

Industrial production in April was stronger than expected, rising 1.1
per cent from March after 11 consecutive falls, but still down 24.2 per
cent on the year.

Sace noted strong export growth to emerging economies – up 18.1 per cent
to China in the year to March, 12.3 per cent to Opec countries and 10.8
per cent to North Africa.

“This contributed only slightly to offset the sharp decline of sales in
all other markets but it is a good sign in terms of dynamism of Italian
companies trying to react to the ongoing crisis,” Sace commented.

The OECD described Italy’s banking system as “relatively healthy” but
said the country was still particularly sensitive to credit tightening
in line with other countries and weakness in external demand.

Officials and economists say Italy’s generally conservative banking
system, coupled with lower than EU average commercial and private debt,
should provide foundations for sustained recovery.

Italian companies would not need to go through the deleveraging of their
foreign competitors especially in the UK and Spain, commented Fabio
Pammolli, head of Cerm research institute. “They are in good shape. The
competitive position of Italian companies has not been damaged by the

Marco Elser, a Rome banker, said talk of recovery was premature. “We are
in the middle of winter,” he said, referring both to Italy and the
global economy. “Springtime green shoots will be destroyed in the next

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