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Italy sees long road back from recession

September 9, 2009

By Guy Dinmore in Rome – Published: September 9 2009

Italy’s economy is starting to emerge from its fourth and worst post-war recession but will take years to get back to pre-crisis levels with some sectors never fully recovering, Confindustria, the main business association, warned yesterday.

But presenting some good news for the embattled centre-right government led by Silvio Berlusconi, Confindustria’s research centre made a slight upward revision to its forecast for GDP growth next year to 0.8 per cent, after a fall of 4.8 per cent in 2009.

International institutions are currently predicting a growth rate of around 0.2 per cent for Italy in 2010.

“Italy’s economic recovery is seen as slow, long and therefore hazardous. It will take years to get back to 2007 production levels, and some sectors may never get there,” Luca Paolazzi, Confindustria chief economist, told a conference presenting his report on the world’s seventh largest economy.

Italy, after a recession that started in 2008 ahead of its main competitors, will take five years to recover eight years of lost GDP, the Confindustria report said. This compares with a eurozone average of three years projected to recover the losses of the past four.

Italy’s manufacturing sector in June was down by an average 26.3 per cent from peak levels, compared with a eurozone average of minus 21.9 per cent and minus 13.4 per cent in the UK. Worst hit sectors in Italy were automotive, down 53 per cent; metallurgy minus 43 per cent and electrical goods down 42 per cent.

Emma Marcegaglia, head of Confindustria, described 2009 as “catastrophic” and urged the government to accelerate reforms to avoid the risk of a return to recession and an irreversible decline in Italy’s growth capacity which ranks among the lowest in the developing world.

Confindustria data, based on EU and IMF research, showed Italy’s growth potential declining steadily from close to 5 per cent in 1970 to around 0.2 per cent this year.

Italy’s potential for recovery is severely handicapped by the industrialised world’s second highest debt to GDP ratio after Japan. Confindustria projects a debt to GDP ratio of 117.3 per cent this year, rising to 123.2 per cent in 2010 and 132.2 per cent by 2014.

Giulio Tremonti, finance minister, is locked in a battle of words with economists he accuses of getting things wrong and fostering a lack of faith among consumers. However, he and Confindustria see eye to eye in attacking Italy’s banks for failing to make use of government loans to extend credits to business.

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