Italy, and the cycle that didn’t turn.

The Italian Institute of Statistics (ISTAT) published yesterday the preliminary estimates of real GDP growth for the second quarter of 2014. It was expected to be bad, as leaked informations suggested it to be in a corridor between -0.1% and +0.1% (already ample enough on the downside to feel comfortable, at this point in time…). It ended up being worse.

The actual figure is -0.2% vis-à-vis the the first quarter of 2014 and -0.3% vis-à-vis the same quarter of 2013. This technically throws Italy into its third recession since the beginning of the crisis in 2008 and it implies that the country has been growing during just one quarter out of the last 12. If this isn’t clear enough, it means that Italy recorded positive quarter-on-quarter growth for 1 quarter over the last 3 years. Even during the third quarter on 2014, when it was positive, quarterly growth was just +0.1%. It looks like an anaemic exception to a (by now) unfortunately well consolidated rule, and this quarter’s data suggests that, despite the typically boasting Italian optimism, the cycle never really turned.


Yearly growth as a consequence remains negative. Slowly less negative, if this can be of any consolation, but still negative casting equally negative shadows on the Italian government’s expectations of annual growth for this year. To put things in historical perspective, figure 2 shows the real GDP in billions of euro from the early Nineties till today. This quarter of negative growth led us back to exactly the same point where we were in 2000, with 13 years of growth have been lost in translation. And at the moment it does not show any willingness to come back.


The big retrenchment of Italian GDP is by now an established fact for anybody reading italian economic press, which has been for quite some time concerned with the issue. But perhaps less clear is how long it would take to get back where we were in 2007. Figure 3 shows some simulation, assuming 4 different cases of trend growth (i.e. annualised quarterly) of how long it would take to revert back to the pre-crisis levels. Assuming a 0.5% trend growth, it would take 20 years.  With an optimistic 1% trend growth we would still need 10 years and 6 years assuming an implausible 1.5%. With a 0.1% trend growth (which unfortunately looks more realistic at the moment), it would take too long than the readability of Figure 3 can tolerate, but anyway more than 30 years.



In the meantime, Italy is looming towards yet another year of zero growth. It’s probably superfluous to point out one more time what are the implications of anaemic (if not inexistent) growth on the sustainability of public debt, but especially coupled with low inflation this makes the burden of our past heavier and heavier. The government’s expectations of 0.8% growth looks in danger, and together with it, the fiscal plans and some of the rhetoric connected to them. If this doesn’t act as a wake up call, I am afraid we should conclude that nothing ever will.


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