MILAN: An uptick in car sales, stable home prices and consumer confidence, and second thoughts on growth prospects at the Bank of Italy are the latest indicators that Italy’s long recession might finally be drawing to a close.
In each of the last two years, brief hopes of an economic recovery were dashed by negative growth and a new slump in industrial production. That could happen again this time, though many economists say they are looking at the latest developments with cautious optimism.
“Things are moving in the right direction,” Luca Paolazzi, chief economist with the industrial association Confindustria, told Italian reporters this week. “The new data is comforting; this could be the year the cycle reverses itself.”
The indicators are not insignificant. The Ministry of Transportation reported that new car registrations, an important indicator in an automobile-loving country like Italy, rose to just over 131,000 in January — an 11 percent increase compared to the same month in 2014. That’s the biggest year-on-year increase in at least four years.
Meanwhile, ISTAT, Italy’s National Statistics Institute says consumer confidence levels are holding steady so far this year after steadily falling for the second half of 2014.
The same for bankers, who say Italian home prices, which have fallen steady since mid-2013, are showing signs of leveling out.
Perhaps more importantly, the Bank of Italy has adjusted its economic growth projections upward, albeit by a small margin. The latest prognostications say the Italian economy will grow 0.5 percent this year, up ever so slightly from projections for 0.4 percent growth at the start of the year.
“The Bank of Italy growth projections may not sound like much, and they are still below projections for the European Union as a whole, but compared to the last couple of years, it is good news,” Javier Noriega, chief economist with Hildebrandt and Ferrar, told Xinhua, referring to a 0.5 percent contraction in 2014 and a 1.9 per cent contraction a year earlier.
A big factor in the growth estimates is the weak euro, which makes Italian exports cheaper and makes Italy a more attractive destination for foreign tourists both oversized factors in Italy. Falling oil prices are also relevant, lowering transport costs and further increasing foreign demand for Italian products.
Regardless of the reasoning, if the projections hold, or if they are further adjusted upward, it would be very positive news for Italy.
In that scenario, the country would see debt shrink in terms of gross domestic product and it would allow tax revenue to climb without increasing tax rates. That would help reduce fears Italy could be headed to a new debt crisis, pushing yields on Italian debt lower and reducing government spending by making it cheaper to borrow money.
“Things are moving in the right direction,” Luca Paolazzi, chief economist with the industrial association Confindustria, told Italian reporters this week. “The new data is comforting; this could be the year the cycle reverses itself.”
The indicators are not insignificant. The Ministry of Transportation reported that new car registrations, an important indicator in an automobile-loving country like Italy, rose to just over 131,000 in January — an 11 per cent increase compared to the same month in 2014. That’s the biggest year-on-year increase in at least four years.
Analysts also said a strong economy would help the support levels for Prime Minister Renzi, making it easier for him to push his reform agenda.
“One good thing could lead to another very neatly,” Noriega said. “But it all depends on the positive news continuing. Everything gets reset if it’s another false alarm.”
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IMC Group