Italy Business Projection Industry Update Quarter 2 2012

  • March 2014
  • -
  • Business Monitor International
  • -
  • 42 pages

Includes 3 FREE quarterly updates

Core Views
The new technocratic government led by Mario Monti will embark on
a last-ditch attempt to restructure the economy and consolidate the
country's public finances. Measures that are likely to be introduced
over the next few months include a progressive shift in the tax burden
away from workers' and corporations' income and towards consumption
and wealth, liberalisation of closed professions, privatisations
of public utility firms, sale of government-owned real estate
and major haircuts of politicians' benefits.

The implementation of a series of austerity packages, both under
Mario Monti and his predecessor Silvio Berlesconi, have improved
Italy's fiscal trajectory. However, the size of the country's debt
load and the gradual pace at which we expect it to be reduced by
will make Italy vulnerable to instability in the eurozone. A major
debt restructuring or outright monetisation by the European Central
Bank are serous risks.
Italy's current account deficit will shrink to 2.8% of Gross Domestic Product in
2012, from 3.3% in 2011, as fiscal consolidation and uncertainty
about the wider eurozone economy dampen the demand for
imports. The improvement in net exports will only be partially
offset by weaker demand for Italian exports from the eurozone.

Major Projection Changes
Notwithstanding our positive view for the government's dedication to
fiscal consolidation and economic growth, we currently projection real
GDP growth dropping by 1.4% in 2012, down from 0.8% growth in
2011. This negative result will be driven by the compression effect
owing to Prime Minister Monti's upcoming supply-side measures, a
slowdown in Italy's main export industry s – with the eurozone currently
expected to contract by 0.5% in 2012 – and heavy fiscal consolidation
measures that will lead to a contraction of domestic demand.

We expect the current account deficit to come in at 2.8% of Gross Domestic Product
in 2012, down from our previous estimate of 3.6%. We had always
expected fiscal consolidation and a wider recession to reduce the
deficit, but we adjusted our estimate in light of a lower than expected
2011 current account deficit of 3.3% of Gross Domestic Product .

Key Risks To Outlook
A stalling economy could see the government miss its fiscal targets
of a balanced budget by 2013. Moreover, given that Italy has the
third-largest sovereign debt load in the world, a rise in servicing
costs would further accentuate the debt burden.
Although the determination of Prime Minister Monti, reaffirmed by the
choice of high-profile figures as ministers, is beyond doubt, political
parties could hamper his agenda, especially as local elections and
electoral referenda approach. Faced with increasing opposition in
parliament, the government could be forced to resign, bringing the
country closer to a major credit event.

Table Of Contents

Executive Summary.. 5
Core Views ..5

Major Projection Changes 5

Key Risks To Outlook 5
Chapter 1: Political Outlook. 7
Industry SWOT Analysis ... 7
BMI Political Risk Ratings. 7
Domestic Politics... 8
Monti To Boost Medium-Term Growth Prospects8
Prime Minister Mario Monti has successfully passed three key law decrees since coming to office on November 18. Aside from shoring
up the fiscal accounts, these measures are aimed at boosting the country's medium-term growth outlook.
POLITICAL TABLE8
OVERHAULING THE ECONOMY...10
Chapter 2: Economic Outlook 11
Industry SWOT Analysis . 11
BMI Economic Risk Ratings 11
Economic Activity 12
2012 Recession To Be Followed By Anaemic Recovery...12
We maintain our projection that fiscal austerity and deteriorating eurozone economic activity will see Italian Gross Domestic Product contract by 1.4% in
2012. Although recent supply-side reforms will support medium-term growth, we expect the short-term impact to weigh on economic
activity.
TABLE: ECONOMIC ACTIVITY..12
TABLE: Gross Domestic Product BY EXPENDITURE, REAL GROWTH %..13
Fiscal Policy.. 14
Debt On Improved But Still Treacherous Trajectory..14
Prime Minister Mario Monti's technocratic government has kick-started a long-overdue programme of economic and fiscal reform with
a view to restoring debt sustainability. Despite our expectation that the government will miss its target of a balanced budget in 2013,
liquidity provisions have mitigated risks of a near-term debt crisis.
TABLE: FISCAL POLICY15
Monetary Policy ... 16
ECB Throwing Caution To The Wind...16
The European Central Bank (ECB) will remain one of the most aggressive central banks in the world in 2012. Political inertia is
hampering a resolution to the eurozone debt crisis, in turn forcing the ECB to take a more proactive role in shoring up debt industry s and
the regional economy.
Balance Of Payments .. 17
C/A Deficit To Narrow; Other Liabilities Accumulating Through Target 2...17
We projection Italy's current account deficit narrowing from an estimated 3.3% of Gross Domestic Product in 2011 to 2.8% in 2012. However, the country is
rapidly accumulating other liabilities through the eurosytem's Target 2 system owing to capital outflows caused by concern about Italy's
solvency.
TABLE: CURRENT ACCOUNT...18
Chapter 3: 10-Year Projection ... 21
The Italian Economy To 2021.. 21
We believe that the Italian economy will continue to face a fairly modest rate of growth over the longer term, weighed down by lower
credit availability and a weaker external environment. 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 FORECASTS21
Chapter 4: Business Environment. 23
Industry SWOT Analysis . 23
BMI Business Environment Risk Ratings.. 23

Environment Overview Outlook.. 24
Institutions ... 24
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS...24
Infrastructure ... 25
TABLE: BMI LEGAL FRAMEWORK RATING25
TABLE: LABOUR FORCE QUALITY..26
Market Orientation 27
TABLE: TRADE AND INVESTMENT RATINGS.27
Operational Risk .. 28
Chapter 5: Key Segments ... 29
Pharmaceuticals .. 29
TABLE: GENERIC DRUG SALES, from 2008 to 2016 ...30
TABLE: MEDICAL DEVICES SALES, from 2008 to 2016 ..31
TABLE: PRESCRIPTION DRUG SALES, from 2008 to 2016 32
TABLE: PATENTED DRUG SALES, from 2008 to 2016 32
Other Key Segments 34
TABLE: AUTOS SECTOR KEY INDICATORS..34
TABLE: FOOD AND DRINK SECTOR KEY INDICATORS34
TABLE: OIL AND GAS SECTOR KEY INDICATORS35
TABLE: TELECOMS SECTOR KEY INDICATORS35
TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS..36
TABLE: FREIGHT KEY INDICATORS36
Chapter 6: BMI World Assumptions. 37
World Assumptions. 37
Oil Headwinds ...37
TABLE: GLOBAL ASSUMPTIONS.37
TABLE: DEVELOPED STATES REAL Gross Domestic Product GROWTH FORECAST38
TABLE: REAL Gross Domestic Product GROWTH CONSENSUS FORECASTS38
TABLE: EMERGING MARKETS REAL Gross Domestic Product GROWTH FORECAST...39

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