Italy Business Forecast Report Q1 2015

Date: December 12, 2014
Pages: 46
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download
ID: I6188E96A19EN

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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.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook


SWOT Analysis
BMI Political Risk Index
Domestic Politics
Weakening Mandate Threatens Renzi's Reform Agenda
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
Long-Term Political Outlook
Fiscal Rebalancing To Weigh On Social Cohesion
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.


SWOT Analysis
BMI Economic Risk Index
Economic Activity
Major Impediments To Growth
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
Balance Of Payments
Sub-Optimal Rebalancing Continuing
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
Fiscal Policy
Low Growth Puts Debt Reduction Out Of Reach
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
Regional Outlook
Storing Up Fiscal Problems For The Future
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.


The Italian Economy To 2023
Major Macroeconomic Challenges Ahead
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


Operational Risk Index
Operational Risk
  Table: Developed State s – Labour Mar ket Risk
  Table: Developed State s – Logi stic s Risk
  Table: Developed State s – Crime And Securit y Risks
  Table: Developed State s – Trade And Investment Risk


  Table: Construction And Infrastructure Industry Data, 2012-2017
  Table: Construction And Infrastructure Industry Data, 2013-2023
Oil & Gas
  Table: Oil Production, 2012-2017
  Table: Oil Production, 2013-2023
  Table: Gas Production, 2012-2017
  Table: Gas Production, 2013-2023
Other Key Sectors
  Table: Pharma Sector Ke y Indicator s
  Table: Telecom s Sector Ke y Indicator s
  Table: Auto s Sector Ke y Indicator s
  Table: Defence and Securit y Sector Ke y Indicator s
  Table: Food and Drin k Sector Ke y Indicator s
  Table: Freight Ke y Indicator s


Global Outlook
Warning Signs Growing
  Table: Global Assumption s
  Table: Developed State s, Real GDP Growt H, %
  Table: Emerging Mar ket s, Real GDP Growth , %
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