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Italy Business Forecast Report Q1 2015

  • December 2014
  • -
  • Business Monitor International
  • -
  • 46 pages

Core Views

After another full-year contraction of real GDP in 2014, Italy will return to modest growth of 0.4% in 2015. Real GDP will remain below pre-2008 levels for the foreseeable future and growth will be insufficient to drive a rapid improvement in Italy’s labour market conditions, with youth unemployment remaining a major problem facing policymakers. We view positively the urgent structural reform agenda of new Prime Minister Matteo Renzi, and note that promising progress has been made so far. However, we are sceptical he will be able to avoid the same pitfalls that have impeded past efforts and watered down previous reform packages.
Lack of significant structural reform in previous years seriously jeopardises Italy’s long-term growth trajectory and raises the risks that the public sector debt burden will become unsustainable. Even if reforms aimed at addressing Italy’s decline in productivity growth and external competitiveness are passed, an ageing demographic profile will make debt consolidation efforts over the long term exceedingly difficult.

Major Forecast Changes

We have revised down our real GDP growth forecast in 2015 to 0.4% year-on-year (y-o-y), from 0.6% previously.

Table Of Contents

Italy Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Weakening Mandate Threatens Renzi's Reform Agenda 8
The failure of Italy's economic recovery to shift into a higher gear will weaken Prime Minister Matteo Renzi's mandate for reform and
bolster support for far-right parties. Nevertheless, Renzi's Democratic Party remains by far the most popular in the country and his
legislative agenda appears broadly on track despite mounting risks.
TABLE: Political oVERVIEW 8
Long-Term Political Outlook 9
Fiscal Rebalancing To Weigh On Social Cohesion 9
Regardless of subsequent government's ideological leanings, Italian policymakers will be constrained by Italy's massive public debt load
and will be forced to enact unpopular austerity measures over the next decade. This will limit the government's ability to tackle poverty
and social discontent, with the north-south socio-economic divide widening. We also expect Italy's regional and global standing to
decline, and finally, we see populist and xenophobic parties gaining momentum over the coming years.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Major Impediments To Growth 14
European Central Bank monetary easing and a waning fiscal drag will lend modest support to an Italian recovery in 2015, but the
economy remains on a very low growth trajectory. Fiscal and monetary policies are inadequate substitutes for the major structural
overhauls needed to boost productivity, and reform momentum has been too slow to offer a significant boost to growth potential in 2015.
TABLE: GDP By Expenditure 14
Balance Of Payments 16
Sub-Optimal Rebalancing Continuing 16
A weak economic recovery will push Italy's current account surplus wider in 2015 as import demand remains subdued. However, weak
global demand and relatively high labour costs will limit export growth in the coming years and the current account will begin gradually
narrowing beyond 2015.
TABLE: Balance Of Payment s 16
Fiscal Policy 18
Low Growth Puts Debt Reduction Out Of Reach 18
Italy's budget deficit will remain within the EU's 3.0% of GDP threshold in the coming years, but the government will resist demands for
further austerity in light of a stalled economic recovery. Whether it can avoid EU sanctions will likely depend on more progress in its
structural reform agenda in the coming quarters. Either way, substantial long-term debt reduction will prove elusive due to a low nominal
growth trajectory.
TABLE: Fiscal Policy 18
Regional Outlook 19
Storing Up Fiscal Problems For The Future 19
Member by member, the eurozone is abandoning fiscal targets amid political pressure. The main exception is Germany, which
further illustrates the profound schisms within the euro area. We expect the European Central Bank (ECB) to become increasingly
interventionist as official policy relies heavily on monetary stimulus.
Business Monitor International Ltd www.businessmonitor.com 3
Chapter 3: 10-Year Forecast 23
The Italian Economy To 2023 23
Major Macroeconomic Challenges Ahead 23
We believe the Italian economy will continue to face a very modest rate of growth over the longer term, weighed down by lower credit
availability, a weaker external environment, and waning global competitiveness. We also warn that major challenges, such as the
government debt load, a deteriorating demographic profile, structural decline in productivity and potential political instability, pose threats
to longer-term economic prosperity.
TABLE: Long -Term Macroeconomic Foreca sts 23
Chapter 4: Operational Risk 25
Operational Risk Index 25
Operational Risk 26
Table : Developed State s - Labour Mar ket Risk 26
Table : Developed State s - Logi stic s Risk 29
Table : Developed State s - Crime And Securit y Risks 31
Table : Developed State s - Trade And Investment Risk 34
Chapter 5: Key Sectors 37
Infrastructure 37
TABLE: Construction And Infrastructure Industry Data, 2012-2017 37
TABLE: Construction And Infrastructure Industry Data, 2013-2023 38
Oil and Gas 39
TABLE: Oil Production, 2012-2017 40
TABLE: Oil Production, 2013-2023 40
TABLE: Gas Production, 2012-2017 41
TABLE: Gas Production, 2013-2023 41
Other Key Sectors 43
Table : Pharma Sector Ke y Indicator s 43
Table : Telecom s Sector Ke y Indicator s 43
Table : Auto s Sector Ke y Indicator s 43
Table : Defence and Securit y Sector Ke y Indicator s 44
Table : Food and Drin k Sector Ke y Indicator s 44
Table : Freight Ke y Indicator s 44
Chapter 6: BMI Global Assumptions 45
Global Outlook 45
Warning Signs Growing 45
Table : Global Assumption s 45
Table : Developed State s, Real GDP Growt H, % 46
Table : Emerging Mar ket s, Real GDP Growth , % 47

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