Consumer Price Index
Gross Domestic Product
Import-Export
Average Production Index
South italy
Employment
Consumer Price Indices
Structure of the production system

2003 YEAR

Although the Italian economy grew by 0.5% in real terms during 2003, the growth was lower than expected. Besides internal factors of the economic situation, the gradualness of the economic recovery also depends on a weaker US dollar.

According to figures released by the Italian Statistic Office ISTAT, at December 2003 the average growth of retail prices was up by 2.7%, a slightly higher increase compared to the average in Europe and France.

The manufacturing production showed a decrease for the third consecutive year. A recovery is expected during the first months of 2004, put at risk by a strong Euro.

At January 2004, (according to ISTAT), there is a worsening of the outlook on economy by Italian families due to the deterioration of the public opinion on that matter.

Foreign trade shows an active trade balance of Euro 2.24 billion in the first 11 months of 2003, compared with that of 2002, which amounted to Euro 8.5 billion.

Exports – at December 2003 - were down by 4.4%, both with European and non European Countries while imports decreased by 1.8%.

Exports to USA is down while there are signals of improvement with Asia.

The competitiveness of the “Made in Italy” is being threatened by the growing presence of Chinese products on the main Italian markets  outlets.

The dynamics of employment remains positive despite of showing signs of a slowdown, stagnation and an uncertain economic recovery ahead: at December 2003 the unemployment rate fell from 9% to 8.5% while youth unemployment remains considerably high (27.1% at December 2003).

Expectations concerning the short-term production trend and faithfulness of enterprises as well have worsened. The production in the Euro area has grown by 0.3%.

Within the European Union, France and Germany are showing signs of recession with an inflation rate of 2.2%.

2002 YEAR

Consumers Price Index: 2.8% in December 2002

After the early months of 2002, a decidedly intense period of activity, also due to the conversion from the Lira to the Euro from summer, there appears to be a moderate increase in consumer prices in a context of rising inflation throughout Europe. Consequently, the goal of bringing the level of inflation down progressively to below 2% has had to be postponed until 2003.

There remains furthermore a significant difference between real inflation as measured by ISTAT and that perceived by consumers.

This short report provides a synthesis of the Italian social and economic system, which is becoming more and more complex and integrated with Europe and the rest of the world. The difficult but successful achievement of the criteria required to take part in the third stage of the European Monetary Union was followed by a gradual shutdown of economic development in Italy in 1998 owing to international financial crises and heavy domestic conditions that could influence further development. In 1998, the achievement of Monetary Union protected Europe from the turmoil of international financial markets and the sharpest rise in GDP was recorded (+2.9% for the European Union and +3% for EMU countries). In the second semester of 1998, a decline and fall in the confidence of enterprises was shown; this trend continued into early 1999, marked by a substantial stagnation of the surplus, followed by an inversion of tendency during the second semester. Despite the first semester of 1999, during the rest of the year the world economic activities have entered a phase of economic recovery which has also interested the rest the European Union, but in a less dynamic way if compared to other areas of production.

Gross Domestic Product

In Italy in 1998, the gross domestic product (from now on GDP) at constant prices grew by 1.8%, a slower pace than in 1997, when a modest increase had been recorded (+2.0%). The acceleration of domestic demand determined this growth, and not including stocks, product grew by 1.9%, the change in stocks sustained this achievement, though less than in 1997; net exports have decreased since 1997 and had a negative influence on the growth of GDP. In 1999 the GDP at constant prices (1995) grew by 1.6% compared to 1998. Net imports of goods and services, after the high increments registered in 1997 and 1998 (10.2% for 1997 and 9.1% for 1998), decreased (+3.4%). The economy showed a progressive recovery during the year, especially thanks to the increase in investments and the recovery of exports. Infact the crisis of emerging economies in the 1998 slowed exports that rose by 1.2%, the smallest increase since 1992. Imports increased by 6.1% in real terms after the remarkable 1997 rise (+10%).

The recovery of the European Economy, that started in late 1999, continued in the year 2000, even if more slowly during the second half of the year. The GDPO growth rate has increased 3,4 % both for the European Union and for the Euro area. Net exports contributed to this expansion, stimulated by the Euro’s weakness together with the strong dynamics of consumption and investment, mostly concentrated in the first semester of the year 2000.

In Italy in the year 2000 the GDP increased 2.9%, almost double that of 1999. This expansion was determined both by the domestic and the overseas demand: the growth in exports had been supported by improved competitiveness stemming from exchange rate depreciation. Unlike the previous two years Italy improved, even if only to a certain extent, its share of Euro area export.

Overseas demand supported a significant development in the industrial sector and a significant growth in the service sector (+12,4% against an import growth of 6.7%), as a consequence of the tourist affluence in the year of the jubilee is also noticeable.

Both investment and expenditures contributed to the strong dynamic of domestic demand.

Owing to the international economy slowdown the year 2001, Italy recorded a substantial decrease in its GDP growth rate: at December 2001 the GDP growth rate was 1.8%.

The Italian deceleration is mainly determined by the negative results achieved by the manufacturing sector, but the service and construction sector showed a stable growth index.

Considering the domestic demand the GDP deceleration is a reflex of the decrease in the private consumption and in the investments slowdown [except the construction sector].

The overseas demand showed a more positive result, but part of it is determined by the import decrease.

The 2001 deceleration, and especially the performance of the fourth trimester, has determined a relatively negative trend (-0.2%) for the 2002, but the data and information available for the first trimester of the year 2002 show a pattern of stabilization, determined by a confidence gain both in the consumers and in the investors.

The 1st of January 2002 was an extremely important date for Italy and Europe: the effective circulation of the Euro has began (1 Euro=1936.27 ITL lira). The Italian economy has entered into a new era: the one of the complete integration with Europe.

The table below (updated to 2001) shows the percentage variations of the RESOURCES AND USES ACCOUNT (quantity/prices of 1995).

IMPORT-EXPORT

The below section and table are intended to give an updated and more specific description of the evolution of the Italian international trade position and an overview on the destination and the composition of the import-export.

Destination of imports and exports (values in millions of Euro: percentage an absolute changes)

Export by branch (millions of Euro) (source: ICE)

Import By Branch (millions of Euro) (source: ICE)

The 1998 average growth rate of industry equaled the 1997 rate, despite downward trends over this year. On the supply side, the lower growth of income was determined by the weak output of services. Services represented 64% of the added value at constant prices, while industry without construction was 28%: thus the development of services played a basic role in the growth of national product in the next years. Below an updated (October 2000) table about the industrial production not adjusted, adjusted by working days and seasonally adjusted.

Industrial production index

October 2000

In November 2000, it is possible to register a recovery of the manufacturing production, with a growth index of 2.4% - compared with November 1999. During the period January-November 2000 the growth index has increased by 3.7% compared with November 1999. Positive are also: the deseasonalized production index and the medium daily production. Equal to the number of days worked, this last one has registered a growth trend of 2.3%. The growth index of November 2000 is the highest index for the entire 1995.

According to the available statistic data, the GDP growth recorded in the first months of the year 2001 can be attributable both to the growth in the service sectors and to the recovery of the construction sector, thanks to the government incentives. The manufacturing contribution to the composition of the added value was weak, the same for the agriculture that had to face the meat market crisis.

Industrial production index (a)

a.      excluding constructions.

Average Production Index (percentage variation)

In the year 1998 Italian competitiveness had been questioned by the slowdown of GDP, though domestic demand was increasing. The ratio of imported goods and services to domestic demand, at constant prices, had already recorded a market growth between 1995 and 1996 (from 22.2% and 23.9%), and rose to 24.7% in 1998. This trend was recorded in several EU countries. However, in Italy it was a fast developing and widespread trend, especially for investment goods and large sections of consumer goods. The imports of goods and services, after a pause during the first quarter of the 1999, grew at high rates in the remaining months of the year. The penetration of imported goods in the domestic market increased further, both in terms of consumables and of investments. Weaker competitiveness had been also shown by the decreased ratio of exported goods and services to total output, at constant prices. In 1997 this ratio was equal to 1996 (12.6%) and dropped to 12.2% in 1998. Despite the global difficulties on important foreign markets, Italy was still the sixth largest exporting country (the export in the 1999 is recovering from the recession of the previous year).

As compared to the beginning of the decade, which was characterized by a marked instability of competitive conditions, the export potential of our business has improved, even though not in great numbers. Over the entire past decade, technology-intensive sectors have gained weight in international trade, however their variations in Italy were slower than in other large EU countries; in the last three years, a few traditional sectors have proved to be highly vulnerable to the competition of developing countries, partly dampened by the recent devaluation of the Euro.

As a consequence the year 2001 ended with some contrasts for Italian commercial balance. Both the imports and exports showed a sensible deceleration, caused by the progressive weakening both of the international and the national conjuncture.

Talking about productive sectors, in 1998, agriculture, forestry and fishing recorded a scanty growth of production, a 1.2% rise in the added value and in prices fell. The 1998 average value showed that the industrial production index rose by 1.9%, though less than the previous year. GDP growth in 1999 was mainly due to the positive results obtained in agriculture (+5,1%), even though this sector has a limited impact, and of the industrial sector in its strict sense (+1,7%). Investment goods were the first item to slowdown, after reaching a peak in October 1997, and over the next months it was followed by other typologies of production. Production for middle-sized enterprises was slightly higher than for large enterprises. A slowdown of industrial activity was recorded in every geographical area. In the fourth quarter, a slight recovery was recorded in the North-East, which usually shows better economic and employment results than the other areas.

Regarding the general increase of exports for the period January-September 2000, the largest increase was recorded in the Southern Regions of Italy (+27.9%), followed by the Centre (+22.8%), then the North-Western Regions (+17.5%). Lastly, the North-Eastern Regions (+15.2%).

In the growing international opening of enterprises in 1998, exports from the South grew by 8.2% with respect to the previous year. This figure, higher than the Italian average, has been achieved for several years; the export shares from the South rose from 9.1% to 10.2% in 1996-1998. Export growth followed a definite change in the specialization pattern. Moreover an initial quality assessment of Italian products exported from the South shows that their standard is equal or higher than the Italian average, especially for products from provinces in Campania and Puglia. The progress and potential of the South is clearly shown by this achievement, as well as by increased tourist flows and a restructuring of trade based on more modern patterns. Moreover the South can no longer be analyzed as an undivided phenomenon, as the findings of the intermediate census and the different development of regions along the Adriatic coast show.

Challenges and prospects for the Mezzogiorno (South Italy). Challenges: Europe can be the starting point of a period of sustainable growth for the Mezzogiorno. The future development of the south part of Italy will doubtlessly depend on its capacity to integrate Europe and to grasp opportunities linked with the expansion of the European single market. Italy is a country of medium-sized firms, which gives foreign investors a variety of interesting targets for acquisitions, so southern Italy could use this strength to develop its industries and the FDI. The Mezzogiorno has to take profit from the labour-reform, that is to say liberalization of temporary and part-time work, to create a new flow of investment. The high-tech sector: younger Italians are comfortable with foreign expertise to help them with Internet start-up. Joint ventures with foreign firms have become the most popular way of sharing costs and developing foreign markets in southern Italy. Prospects: There are some encouraging developments that show that successful change can take place in the Mezzogiorno when circumstances are favourable. New investments: The American hi-tech firm EDS has made a major investment near Caserta. Mission Energy from California has made an investment in Sicily. The University of Pittsburgh has initiated a joint venture in Palermo to establish a state of the art cardiac treatment facility. American and Italian entrepreneurs using Danish equipment and Japanese financing have launched a wind power project in Avellino Province. Fiat's new automobile plant in Basilicata is at the cutting edge of technology and employs a significant number of local workers, although its linkages with local suppliers are still weak. BAA, the British Airport Authority, has made a majority investment in the Naples Airport, and German investors have turned the once-abandoned Gioia Tauro industrial site into a thriving container port. Petroleum: Significant oil strikes have been made in the Province of Potenza in Basilicata. Although energy prices are currently very low, some analysts are predicting a new energy shortage in the first decade of the next century. Such a development could bring considerable revenue and potential development to this part of the South. Tourism: This holds great promise for the Mezzogiorno, as the region enjoys a very rich historical and cultural background. There is still quite a lot to do in order to make it a very touristic region, yet the touristic potential is high. In Naples, for example, a considerable effort has been made to restore historic churches and monuments and to develop user-friendly tourist itineraries. The newly refurbished Capodimonte Palace Art Museum, the National Archeological Museum in Naples and the archeological museum in Syracuse are now world-class facilities In a real sense, the Mezzogiorno's future is its past.

NATIONAL ACCOUNTS (percentage variations / Index Base=1995)

In the year 2000, a growth in employment was recorded (occupational growth from 20 million 612 thousands in 1993 to 21 million 322 thousands in 2000). Total employed rose by 0.7% on a yearly average, the highest growth occurring within employees. The highest increase in employment for the nineties was recorded in industry, excluding construction. Labour demand in services grew more than in 1997, though less than in industry. Notwithstanding the modest growth of the real product in 1999, the working population has increased for the second consecutive year at a rate of approximately 1% establishing a positive trend in subordinate employment (+1,5%) and a 0,3% decrease in self-employment. Employment levels have increased in particular in the tertiary sector and in non-typical contract profiles. The number of employed grew throughout 1999, exceeding the levels obtained in January 1993. This increase was more significant in the central and northern regions of Italy and less evenly distributed in the South. The employment rate among the population aged 15 to 64 was 52.5%, with an increase of almost one percentage point over the previous year. Unemployment has decreased, a phenomenon that is not new to northern Italy, but that has never been so relevant at national level: the unemployment rate, without considering seasonal variations, has dropped from 11,9% (October 1998) to 11,2% (January 2000). In October 2000, the unemployment rate is approximately 10%.

Large firm in manufacturing and services: labour indicators

April 2000 (Source: ISTAT)

Labour and wage statistics in manufacturing (2)

Labour and wage statistics in services (4)

1. Firms over 500 employees.
2. Including mining and electricity, gas and water supply.
3. c.i.g. = cassa integrazione guadagni = Short-time working allowance.
4. Excluding health, education and non-market services.

Large firm in manufacturing and services: labour indicators ⁽¹⁾

December 2001 (Source: ISTAT)

Labour and wage statistics in manufacturing (2)

Labour and wage statistics in services (5)

1.      Firms over 500 jobholders.

2.      Including mining and electricity, gas and water supply.

3.      c.i.g. = cassa integrazione guadagni = Short-time working allowance.

4.      Overtime = share of regular working hours.

5.      Excluding health, education and non-market services.

The positive performance of the Italian economy in the year 2000 determined a strong growth in the employment, emphasizing a trend that emerged during the previous two years.

Compared to the past a greater share in new jobs pertained to standard positions, meaning full time subordinate employment. In January 2001 the number of employees was 3.2% (656,000 people) higher than in the previous year.

In parallel unemployment decreased on yearly average from 11.4 in 1999 to 10.4 in 2000.

However the positive trend of the situation in the job market did not reduce the gap of employment rates between the Southern and the Northern and Central Italy.

Despite the reduced activity of the 2001 the positive trend emerged in the previous year continued with a further decrease in the unemployment rate and a parallel jump on in the employment.

This trend is shown in the below table with the updated data on the job market.

Unemployment rates (percentage values)

Different inflation rates were recorded between output prices of services and industry. In 1998 the difference grew by 3%, which was greater than the previous year. The nineties were characterised by this trend, which may have affected the competitiveness of Italian industry, characterised by an increasing integration of industry and services activities.
CONSUMER PRICE INDICES, trend % changes, 1995-98

In the year 2000 the depreciation of the exchange rate and increased petrol prices determined relevant inflationary trends. The strong rise in imported inputs costs had a quick repercussion on the production prices of industrial product registering a 6% increase. The impact on consumer prices was more limited: the inflation rate increased on average from 1.7% in 1999 to 2.5% in 2000.

The differential coefficient with the other countries of the Euro area based upon the harmonised index was 0.3 percentage points (from 0.6 points in 1999).

In the first few months of the year 2001, inflationary pressure become more evident, outlining contingent factors, the gradual transfer onto the original prices of input costs tensions and the new impulses coming from abroad (volatile prices and the weakening of the Euro). The trend growth rate of consumer prices went therefore beyond the 3% threshold.

But in the year 2001 the inflationary trend has recovered and in December 2001 the average growth of the consumption price index was 2.7, while the production price index was 1.9.

Production and consumption index (percentage change)

The section below provides updated and more specific information on the inflation rate trend during the period 2001-2002.

Production price index for industrial products - February 2002 (source: ISTAT)

Production price index numbers for industrial products by sector of economic activity

Consumer prices index for whole nation

Consumer prices index for whole nation by type of expenditure

Harmonised EU consumer prices index - base 2001=100 - Italy

Harmonised EU consumer prices index - Italy

Harmonised EU consumer prices index by type of expenditure - Italy

In 1998 net borrowing in the public sector stood at 2.7 of GDP, the same as a year earlier. However, this figure was slightly higher than the 2.6% established in the 1999-2001 Economic and Financial Planning document. After thirty years, the current balance was positive and represented .5% of GDP. Public sector expenditure recorded a modest growth than the previous year (+1.3%), decreasing its ratio to GDP from 51.2% to 49.7%. The moderate pace of current expenditure (+4%), which followed the 1997 trend, was recorded with a sharp recovery of capital expenditure (+14.2%), after the 1997 drop.

Public accounts continued to improve in 1999. The ratio between deficit and GDP was set at 1.9%, a value never reached in the last thirty years and quite lower than the one envisaged in the Government’s Prospects and Plans Report. The ratio between public debt and GDP, which also saw a decline, reached 114.9% (it was 123.8% in 1994). Public expenditure has increased by 1.8% and includes a considerable increase of expenditures in the capital account, which shows a recovery of investments. The restoration of public accounts in the results of a process that is rooted far back in time, at the beginning of the Nineties. The thrust towards the adoption of strict public-revenue policies came mainly from the outside, in particular from the restraints imposed to take part in the third phase of the European Monetary Union. After the first half of 1996, Italy was still not in line with any of the admission standards. However, during the second half of that year the country managed to change in situation, by adopting public finance measures that led to attain, in 1997, a deficit below the maximum threshold set for joining the ECU (2.7% instead of 3.0%). The renewed trust of economic operators in public-revenue policy objectives and the expected convergence of interest rates at French and German levels supported and sped up this process. The reduction of the ratio between public debt and GDP leaves hope for a future opportunity to reduce tax pressure and to recover public investments aimed at improving competitiveness. Total public revenues increased by 1.2%, with a marked slowdown in growth over a year earlier and a decrease in the ratio of GDP, which dropped from 48.5% to 47%. Fiscal pressure fell from 44.8% to 43.6%. The public administrations’ net debt, calculated on the basis of the Community rules and regulations, decreased 1.5% points, compared to the previous year, equal to 0.3% of the GDP. The revenues resulting from granting the UMTS licenses, at the end of the year, were determinant for this result. Net of such revenues, the ratio between net debt and GDP is equal to 1.5%, 0.3 points lower compared to 1999. The ratio between public debt and GDP decreased to 110.2%, with a four points reduction compared to 1999.

During the 2001 the Italian public sector accounts continued to improve, in order to meet the criteria set by the European commission in the Stability program for the complete readjustment of the Italian public financial situation for the year 2005.

Net borrowing of general government, public debt and Gross domestic product. Years 1998-2001

Talking about the structure of the production system, the important role of very small enterprises and self-employment has always been stressed in our country, due to the traditional sectorial specialisation of our industry. A comparison of the average size of Italian enterprises with enterprises in the European Union further underlines the peculiarity of our system: Italian enterprises are smaller, they have 4 employees against 6 in the European Union. Employment in industrial enterprises with 250 employees and over represents 25.4% and in the European Union 47.2%; services enterprises with less than 10 employees represent 61.1% of employment for this sector while in the European Union it is 42.3%.

In more recent years, the differences between the Italian production system and that of other industrialized countries have sharpened. The prevalence of small businesses and sectorial specialization have led Italian industry to seek competitiveness through flexibility and adjustment to external conditions rather than through the adoption of adequate tools to challenge globalization. SMEs keep on doing FDI aimed to lower the costs, while the large firms make specialised financial operations aimed to acquire delivery firms or blueprints, in order to have a stable presence in the foreign markets.

There are at least three factors that favoured the evolution of an original pattern of localized growth; family networks and the relevance of their economic role; the traditional function of craftsmanship; the ability of local administrations to supply the infrastructures required for business creation and development. Industrial districts are the result of an interaction between small businesses and the institutional, economic and cultural environment. Recently the average dimension and the degree of concentration of industrial undertakings dropped again, in association with a lesser vertical integration.

Small businesses are subject to two opposing trends. On one hand, due to substantial differences in the technological, organizational and market aspects, they are encouraged to grow in size by the labour productivity differential as compared to medium-large firms. On the other hand, the gross profit margins gained by small businesses are quite good, thanks to the cost of labour differential as compared to medium-large businesses, which is higher than in other large European countries, and this advantage would discourage their enlargement.

Updated data show that the geography of Italian industry has not changed, though a relative growth is recorded in the following regions: Marche, Abruzzo and Molise, in the North-East and in the North-West. Districts are a specific structural feature of Italian industry.
Some peculiarities of industry structure can be traced for agriculture as well. Italian farms are smaller than European farms and are still rather underdeveloped, except for few innovative examples. The number of farms is still falling as in other European countries. In Italy, Northern farms were mainly affected and this reduction determined an increase in the average farm surface by over 10%. The development of services follows modern foreign organisational patterns, though development is still delayed, especially for services to enterprise and commerce. The processing of new national accounting shows that our industry tends to work under non-regular conditions. Services employed the greatest share of non-regular employees (about 70%), though the highest ratio of non-regular employees to total sectorial employment was recorded in agriculture.

The efficiency of enterprises is a crucial element that determines the competitiveness of a country. Italian enterprises have achieved adequate technical efficiency not only in the manufacturing sector but also in more traditional sectors, despite their small size. The competitiveness of some sectors is also based on districts, such as leather, footwear and leather products, and textiles. In other sectors, no difference is recorded between enterprises in districts and isolated enterprises, such as engineering and wood enterprises. The findings prove the importance of the district pattern, though it does not seem to be an exclusive feature ensuring the technical efficiency of small and medium-sized enterprises. The success of production system does not depend only on efficiency, but also on the characteristics of the specialisation pattern, advanced innovative capability, the quality improvement of tangibles and intangibles resources for the production of goods and services. Technological innovations are being adopted even in sectors where not long ago it had been even less important than their styling of products or organisational innovations. New products or new technological production processes were developed by about 50% of Italian industrial enterprises. 14.5% of innovating enterprises introduced innovative products, and 23.7% innovative processes; the majority of enterprises (58.5%) introduced both types. In particular, a marked trend to innovation was recorded in small-sized enterprises and “traditional” sectors. A further new element, in comparison with the early nineties, is the attention paid to quality, which is a basic element for the majority of enterprises deciding to invest in innovations. However, financial difficulties are still heavily limiting the development of innovation.

The competitiveness of a country and its production system is also based on how much it invested in human resources and their education.

The analysis of the Italian educational system and youth participation in education shows that the educational gap has been filled. However a comparison with other European countries highlights a number of delicate issues and structural faults: the lengths of compulsory education, non-flexible curricula, the high number of students leaving school without a certificate or diploma, education mainly based on the school system and not adequately related to labour market. However, in Italy, secondary and university education is more profitable if compared with estimates from Germany, Denmark or the Netherlands. This is shown by comparing the outcome of education for employees in the European Union, considering the wage differential between a qualification and the next lowest qualification. Wage differentials due to differential qualifications are higher in the North-West and lower in the South. On the other hand, regardless of the qualification, wages mainly depend on the type of job.

Exchange rate Euro/NZ$: 1 Euro is about 1.96 NZ$ (January 2003)