Italy: When La Dolce Vita turns sour

7th August 2012

The last ten days or so have seen a lot of debate about the role of one of Italy's most prominent individual's the President of the European Central Bank Mario Draghi. Will he save the Euro? Can he save the Euro? And so on and in some cases on and on. However whilst the ECB can help in the financial arena in terms of liquidity and interest rates in an era of broken monetary transmission mechanisms we have to face the fact that even extreme measures may only have a limited impact on the real economy.

I wish today to examine what Mario might be able to do for his home country Italy.

Italy's economic situation

I was struck last week by Italy's unemployment numbers which I would like to look at in more detail now.

"Istat estimates that 23.0 million persons were employed in June 2012 (provisional data). Employment rate was 56.9%, unemployment rate 10.8% and inactivity rate 36.1%."

These numbers were immediately troubling because they showed an unemployment rate some 0.7% higher than the month before. This was hidden in the announcement of a 0.3% rise (76,000) because there was a revision higher to May's numbers of 0.4%. The 761,000 Italians who had joined the unemployment line will be much less concerned with such technicalities.

The other concern was the size of the inactivity rate at 36.1% which is rather high. For example here are the latest numbers for the UK.

"The inactivity rate for those aged from 16 to 64 was 22.9 per cent"

And if we look back over the last 12 months we see that levels of inactivity in Italy have dropped (752,000) by a very similar amount to the rise in unemployment (761,000). This may be a statistical fluke but it tends to raise the amount of unease about the numbers.

Italian industrial production

We can come right up to date with these numbers and we see that on a month on month basis the decline is continuing.

"In June 2012 the industrial production index seasonally adjusted decreased by 1.4% compared with the previous month."

And that the comparison with last year looks grim.

"The unadjusted index of industrial production decreased by 8.2% compared with June 2011"

Over 2012 as a whole up to June the year on year decline is 7% so the situation still appears to be weakening. And if we look back over time for some perspective we see that the industrial production index is unadjusted at 87 or seasonally adjusted at 82 compared to a base of 100 in 2005. Looking at the detail the turn downwards appears to have started in August 2011 and it is widespread as all sub- categories have weakened since that date.

Rather disturbingly if we look back in time we see that such numbers for Italian industrial production were last seen in the late 1980s.

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The Financialist

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