World Economic outlook -Italy's economy is probably full-blown recession 2012 ; The eurozone's third-largest economy is in recession and analysts predict worse to come. Its failure could affect everyone Italy's economy is probably in the grip of a full-blown recession, after figures revealed that for the three months to the end of September it shrank by 0.2%.
As the eurozone's third-largest economy and claimant to the world's third-largest debt market, Italy is the one to watch when it comes to warning signs that harsher times lie ahead.
The country, which manufactures a third again as much as the UK, has the capacity to bring everyone else down with it – should the economic wheels turn in reverse for any length of time. Which is why analyst projections – which show the current quarter is likely to be no better and next year bleaker still – are so frightening .
Not that we need look any further than the new government of technocrats for a gloomy picture. The Rome administration of former EU official Mario Monti has predicted the economy will contract by 0.4% in 2012.
A bit like the new rightwing government in Madrid, Monti is kitchen-sinking the country's problems in the hope they will prove less severe and the economy emerges less damaged.
However, analysts are gloomier still.
"We expect the contraction in Italian GDP that began in Q3 will continue and deepen over the next two years in Italy, as the new government implements a series of austerity measures, banks across Europe deleverage and consumer and business confidence continue to flag," said Megan Greene, head of European economics at Roubini Global Economics.
Household consumption in the third quarter was down (0.2% quarter on quarter) and total investment was down (0.8% quarter on quarter) with a massive decline in transport vehicles and another decline in the construction sector. Net exports were up, but only 0.8% quarter on quarter, which is not enough to overcome the collapse in domestic demand.
Lombard Street Research chairman Charles Dumas says the latest Monti budget, which amounts to a fiscal tightening equal to 4-5% of GDP over 2012 to 2013, will be "violently deflationary" and the dampening effect will be exaggerated by a reliance on tax increases.
Italy's employers' lobby group, Confindustria, expects GDP to fall by 1.6% in 2012. This decline, if true, is terrible news when national output is still 5% lower then it was in 2007.
Dumas is fearful that Silvio Berlusconi is waiting in the wings, ready for a comeback. It may result in Mr Bunga Bunga orchestrating a default, which is hardly the point of the whole technocratic strategy.
Dumas says: "It is more than a little worrying that a few months of technocratic government may leave Italians saying: "Come back Silvio – all is forgiven." He still commands a majority in the parliament, which still retains its democratic prerogatives in Italy.
"The Neuros are taking huge political risks with insisting on such aggressive Italian deflation – and they may even be reducing their chances of recovering 100 cents in the euro from money lent to the Italian government," he adds.
The term Neuros refers to the northern European club of Germany, the Netherlands and others that want the southern Europeans to pay back all their debts. They are sticking to this line even though the Germans have never paid back their debts, at least not over the last 100 years
No comments:
Post a Comment