By Abhishek Malhotra?
In the current global scenario, ?Italy is not the only country facing problems in the Eurozone. When we look at the total growth achieved from the beginning of the century up to last year, we find that – France and Germany have managed 15% growth, while?Spain, even after facing a major financial crisis could gain 18%. Ireland, today, is more than 30% up. Italy’s growth, however, in the same period is approximately zero. The Italian yields are an unimpressive 1% per year. And, the figures from the IMF database suggest that the economy is slightly smaller than what it was in 2000.
Italy’s gross domestic product remained flat in the second quarter of 2016 compared to a 0.3 percent expansion in the previous period and in line with preliminary estimates. It was the lowest GDP growth since the fourth quarter of 2014, as a positive contribution from foreign trade was offset by a contraction in domestic demand. Compared with the same quarter a year earlier, the GDP advanced 0.8 percent, above preliminary estimates of a 0.7 percent growth.
Net exports contributed positively to growth while domestic demand contracted. Government spending shrank 0.3 percent and investments also declined 0.3 percent while consumer spending advanced 0.1 percent. On the production side, there was an increase in the value added in both services agriculture sectors while industry contracted 0.6 percent.
Behind the jobs figures
Before the beginning of the financial crisis, Italy’s economy did expand and later went into reverse. Looking at quarterly data, it is still approx. 9% below the peak it had reached before the crisis.
Unemployment is very high, 12.7% in December. But, the actual job situation is worse than what the unemployment figures suggest. The working age population who do have jobs is 55.6%.?That is way below the Eurozone average of 63.8%. Spain and Greece are the only countries in Eurozone which have figures below Italy’s.
Big debtor
Another major problem that the country faces is the government debt. To improve the economy, the government increased spending. Thereby,?raising the government debt in the process.
In fact, Italy is one of the largest Eurozone debtors. As per International Monetary Fund estimates the Italian government’s gross debt is more than 130% of annual GDP.?The deteriorating economic growth makes it much harder to tackle this problem. Tax revenue has reduced and a stronger growth would mean that debt can be reduced – which in turn, will upturn the growth quickly.
Most countries in the world have primary deficits, but Italy has a surplus which is good for development and as per IMF estimates, the numbers even beat Germany.
Growth priority?
The last two years have been kind to Italy in one important aspect. Government?s borrowing costs have come down drastically to a manageable level. Previously the effective?interest rates on 10-year Italian government debt were well over 7%. These are now at half the levels.
Mr Renzi’s government?s main agenda appears to be faster growth. The signs point that he might be comfortable in letting the government borrowing rise in the short term.It is worth mentioning that Italy remains by any measure a rich country and that the citizens of many other countries envy the quality of life there. But if compared to the neighbours and the rest of the world, it has significantly deteriorated.
The truth – Italy could be a lot richer.
Can Italy end up like Greece?
Greece in mid-2015 had a stagnant economy and 360 billion Euros of debt, which was 170% of GDP. Italy has a 130% of GDP debt, but by virtue of being a bigger economy, that amount stands at $2.1trillion. Hereafter, low-Interest rates won?t help if the amount is this huge and the economy stagnant. In the coming years, if proper measures are not taken to increase exports and cut down unnecessary government spending, then the situation could be worse than what Greece was facing.
Facts and Figures from:
http://www.tradingeconomics.com
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