October’s Report on recent economic developments assesses domestic and international economic conditions in the light of developments in the first two quarters of the year and the outlook for the second two quarters. The main findings of the analysis were:
- The Italian recovery proceeds at a moderate pace: the PBO forecasts that GDP expanded by 2% in the third quarter and 0.1% in the fourth. These assessments point to average GDP growth for 2016, adjusted for the number of working days, of 0.8%. Unadjusted for the smaller number of working days compared with 2015, GDP in 2016 is projected to increase by 0.7%, compared with the 0.8% forecast in the Update to the Economic and Financial Document.
- This performance has been impacted by an easing of the growth in domestic demand, while developments in exports, although positive, have been limited by the persistent weakness of global trade, whose elasticity to global growth has experienced a structural decline.
- The consumption of Italian households has faltered recently, growing less than the increase in disposable income would permit.
- Investment has failed to revive, despite the improved profitability of firms and the easing of credit constraints. A factor in this is represented by the uncertain prospects for demand, which is holding back the expansion of capacity.
- Nevertheless, expectations of low demand are not slowing investments in rationalisation, intended to improve efficiency. The recent revision of the national accounts by Istat reveals improvements in manufacturing productivity and profitability in recent years. Since the low registered in 2009, manufacturing value added per hour worked has increased at an average quarterly pace of 7%, similar to that posted in the expansion of 2003-2007 before the crisis. This suggests that in the last two recessions resources have been reallocated to the more productive and profitable firms, i.e. those most successful in reorganising their production processes. Manufacturing thus appears to have emerged from the crisis with a smaller number of firms but with a higher average level of efficiency.
- Employment has continued to perform well, even outpacing GDP. In the second quarter of 2016, the likelihood of the unemployed finding a job had risen by 5.5 percentage points on the previous year. Most recently, however, signs of a slowdown in employment growth have emerged, especially for open-ended hiring. Recent figures on the labour force and, above all, INPS data show a deceleration in the creation of new jobs, especially open-ended positions and transformations of fixed-term jobs to open-ended status. One factor in the slowdown has been the reduction of contribution relief in 2016.
- In September, the rate of inflation turned (barely) positive thanks to the rise in the prices of energy products. Domestic price pressures remain weak however. The proportion of goods in the Istat basket experiencing deflation remains high (31%), while the percentage of those experiencing very low inflation (below 0.5%) was 56%.