In spite of Italy’s private wealth her economy is in danger falling into an economic depression

The Easter weekend has come and gone with no solution in sight to the logjam in Italian politics which leaves her rudderless in terms of a government. Back on the 27th of February I mused on whether this would be as bad as it might seem,after all has any country been governed as consistently incompetently as Italy in recent times? Also there is the example of Belgium which economically showed signs of improvement when it had no government! However the Italian economy is in a bad rut and it is the latest data on this which I wish to analyse today.

Italian manufacturing

This morning has seen the release of the Markit Purchasing Managers Index for March manufacturing in Italy and it makes grim reading.

The first quarter of 2013 ended with faster rates of decline in manufacturing output, new orders and employment, confirming that the goods producing sector remained firmly in the grip of recession.

As you can see there is little cheer to be found there and the spot reading of 44.5 was below February’s already weak 45.8 (50 represents unchanged in this series) and the report goes on to tell us.

The latest reading was below the average recorded over the current 20-month sequence of contraction, and indicative of a marked deterioration in overall business conditions. (emphasis is mine).

Also I noted this section on employment.

Manufacturing employment decreased for the twentieth month running in March, as firms adjusted down their staffing numbers in accordance with lower production requirements and new order intakes. Furthermore, the pace of job shedding was the fastest since last August.

The one bright spot was that exports orders improved albeit marginally but there is a catch to that if we look at the overall series.

Anecdotal evidence highlighted particular weakness in sales in the domestic market

Thoughts immediately turn to the prospect of Italy’s economy being sucked downwards in a by now familiar Euro area austerity result.

Retail Sales

If we probe more deeply into the prospects for Italian domestic demand then we can investigate the report for March which was released late last week.

March PMI data revealed a further marked decrease in retail sales…. Employment and purchasing activity were reduced by businesses to levels more consistent with lower sales.

The spot reading for this was an ice-cold 40.3 which is the sort of number associated with the economic debacle which is Greece. Also we see that the problem has become persistent or perhaps to use a modern official idiom it is “temporary”.

The headline number has posted below 50.0 – signalling contraction – in every month since March 2011.

Also we note that this sector is also shedding jobs.

Solid and accelerated decrease in employment

So the two latest business surveys both point to weakness in Italian domestic demand and a fall in employment in March.

The official numbers


These numbers are well behind the surveys above but we see that they do agree.

In January 2013 the seasonally adjusted industrial new orders index decreased by 1.4% with respect to December 2012 (-3.0% in domestic market and +1.3% in non-domestic market). …..In January 2013 the unadjusted industrial new orders index decreased by 3.3 per cent with respect to the same month of the previous year.

There is an attempt at sugar coating there by switching to the unadjusted series in the year on year comparison as there was an extra working day in January 2013 but even so we are headed downwards.

Also output had already fallen.

The calendar adjusted industrial production index in January 2013 decreased by 3.6% compared with January 2012

Consumer Confidence

We see that the official reading backs up the survey above.

In March the confidence climate index decreased from 86.0 to 85.2

Also we see the cause is that further economic weakness is expected.

The drop was notably explained by economic and current climate that decreased from 72.7 to 68.8 and from 91.1 to 89.2, respectively.

These series are compared to a benchmark of 2005 being 100 so the outlook here is grim and not helped by the fact that further rises in unemployment are expected.

Retail Sales

Here again we see the same pattern.

In January 2013 the seasonally adjusted retail trade index decreased by 0.5% with respect to December 2012 (-0.6% for food goods and -0.4% for non food goods). The average of the last three months compared to the previous three months decreased by 0.8%.

The unadjusted index fell by 3.0% with respect to January 2012.

We also have another sign that the going is tough as the numbers have now been rebased to compare to 2010! If they were trying to create a more positive atmosphere then the  seasonally adjusted underlying numbers of 99.5 and the unadjusted one of 90.5 must both be disappointments to them.

Let me help them out as by my calculations retail sales in January were 84.8 if we use 2005 as 100.

What about construction?

Here we see another familiar drumbeat of these times.

In January 2013 the seasonally adjusted index decreased by 1.4% compared with the previous month. The percentage change of the average of the quarter November-January, with respect to the previous quarter, decreased by 6.3%.

So what in the past has been an engine of recovery is still heading downwards which gives some food for thought as Italy has not had the boom and bust in this area that Spain and Ireland had. Well not the boom anyway as we see an underlying series that in spite of being re-based to 2010 has an unadjusted reading of 66.1.

Time for a surprise?

These numbers did surprise me this morning and here they are.

In February 2013 the unemployment rate was 11.6%, -0.1 percentage points compared with January

If we look into the detail we see that on this seasonally adjusted series that unemployment fell by 28,000 in February. Also we saw that the leading indicator which is employment rose by 48,000 completing a good set of numbers.

The catch is that these do not match what other numbers tell us about the Italian economy and indeed whilst the surveys quoted from above are for March they envisage employment falls and not rises. They are more in line with the annual numbers where unemployment has risen by 401,000 and employment fallen by 219,000.

If we move to the raw data we also see a fall in February although the number of unemployed rises from 2,971,000 to 3,303,000.

So we have an element of a glass half-full or half-empty situation here as whilst I would like to believe the Italian employment situation improved in February there is the danger such a number is setting us up for one of Bob Dylan’s hits.

It’s a hard rain’s a-gonna fall.

If we move to the Euro area we see that there was a rise in unemployment overall with the unemployment rate staying at 12% so Italy outperformed her peers in February.


Back on the 27th of February I pointed out that the fundamental issue facing Italy was worsening.

This has left it with a high level of public-sector debt (127.3% of economic output) which means that it is vulnerable on this score in any future economic slowdown which is of course what it is now experiencing.

We can see that the subsequent month has seen yet more economic weakness in Italy. So we can be fairly sure that she has seen the seventh quarterly fall in economic output in a row. This puts further pressure on the debt and deficit numbers as well as further worsening the debt to economic output ratio. We also know that looking forwards the supposed Euro area cure of austerity invariably makes things worse for both the economy and the public debt position. The original austerity programme of Mario Monti was supposed to give a balanced budget this year whereas even the European Commission now forecasts a deficit of 2.1% of economic output.

However Italy does have resources as some recent data which was not what you might expect pointed out. The German Bundesbank pointed this out in a new data series that median wealth in Italy is 163,900 Euros and median wealth in Germany is 51,400 Euros. It is not the full story but it does highlight that things are not always as clear-cut as they may seem. Perhaps wealthy Italian’s might help out their poorer German neighbours?




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  • Anonymous

    Hi Shaun,

    The Bundesbank has numbers for Italian median wealth, but how can they know this ? Remember last year when many Italians were rapidly selling expensive cars (because their declared taxable incomes could not explain how they afforded the car) I question the reliability of these statistics.

    Now put yourself in the position of an Italian with savings, do you feel safe investing in shares of an Italian company regulated by an administration lead by bunga bunga Berlusconi ? Would you feel safe keeping your money in an Italian bank after the Cypriot bank crash ?

    I suggest that this money will not help the Italian economy. Swiss banks, German shares and even London property might seem more attractive. Any thoughts ?

  • max

    It’s a slow motion motorway pile up!!!

  • Justathought

    Hi Shaun,

    Excellent analysis as always.

    Would it be interesting to monitor capitals moves from the median wealth countries above E100.000 (Spain, France, Italy notably)? With the new Eurozone blue print as experienced in Cyprus for bail in/bail out we might see some transfers… however it appears that much of this median wealth is tide up into bricks and properties (secure taxable revenues for the state).

    How true the old adage stipulating that it is good to be in the 85% of the population having worth equal/ superior of 2000 dollars but it is rather far superior to be in the 15% of the population who can meet its obligation for at least three months regardless of any revenues.

  • Anonymous

    Is contagion heading North – rumours that Luxembourg is the next minnow to be caught by the Troika?

  • Justathought

    Hi ExpatBG,
    This is the uncompleted stats

  • Justathought

    Hi Chris,
    When you know that the weight of the banking sector in Luxembourg is estimate to be 22 time the GDP of the country. Endeed some people might start having sleepless nights….

  • Ian.Jones

    The only country benefiting from trade with China is Germany, its killing the rest. I wonder why Germany is so keen to tie in the rest but not distribute its gains? ~The Italians cannot be far from kicking the Euro and free trade into touch….

  • Anonymous

    Thanks for the numbers, but are they accurate? For example the wealth of Spaniards probably included various property(ies) – have these been counted at 2007 (precrisis value) or heavily discounted at current sale values ? Do the values include or exclude mortgages on these properties ?

    How do you trust statistics from a country where households with taxable income around 20,000 euro buy new cars worth over 50,000 euro ?

    Even the Germans are known to discretely drive suitcases of money to banks in Luxembourg and Switzerland, which will mess up the numbers.

    The Dutch haven’t been shown, I read in spiegel that many Dutch homeowners are under water – Eg negative wealth due to timing of purchase and a property bust.

  • JW

    Luxembourg has tax treaties with both Germany and France. Most of the money is held by German’s in German bank subsidiaries. Luxembourg is ‘different’.

  • Justathought

    I definitively can not pretend the accuracy of theses figures, I take them merely as some indicatiors however it offers some possible outcomes in this giant “chess game”

  • JW

    Hi Justathought

    Scratching my head over these stats. Not so much the levels between countries but what the average versus median stats within countries is telling us. Are the two ‘germanic’ countries really the most extreme? Much more than say Spain? Is it over-inflated estimates of property wealth in Spain that misleads the stats?

    West Germany and France unsurprisingly in my view look similar , although wages in France have outstripped those in the whole of Germany over the last 15 years, maybe most of the pain was felt in the east?

  • JW

    Hi Shaun

    Italy has ‘old property wealth’, rather than more recent ‘bubble wealth’. Of course not all Italians are ‘wealthy’ but enough tend to have ‘resources’ to call on. As a population they can spend some considerable time watching their ‘public services’ decay before they feel real pain.

    As remarked previously, ‘democracy’ is not something many Italians lose too much sleep over. Autocratic, technocratic leadership finds many followers. Over the last century its the only thing that has kept the country together. Better a ‘strongman’ from Germany or Brussels than Berlusconi for many.

  • Anonymous

    Yes, these numbers are only useful for political shenanigans

  • Anonymous

    Hi Expat

    This was something of a first venture for the Bundesbank as this was the first time I recall it doing such comparisons. The PHF (Panel on Household Finances) survey was begun by it in Germany in late 2010 and they have been refining it.
    It is part of a European survey which is how the Bundesbank found itself comparing numbers with Italy and in effect giving its own stamp to them. You may spot that what was called East Germany means that Germany as it stands now has a very unequal wealth distribution and this is one of the factors I hinted at as the average numbers are quite different.

  • skannan

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  • Anonymous

    Hi Guys

    Just to add to my earlier reply that I completely agree that the numbers for Sapin in particular beg more than a few questions. This is because value of the housing stock is a big influence and of course not only has its been falling substantially but it still is.

    On house ownership overall there are some interesting insights in this from the Bundesbank update.

    “The rate of home ownership in Germany equates to 44.2%. This rate is significantly higher in western Germany (47.1%) than in eastern Germany (33.7%). The proportion of owner-occupied housing is rather small in comparison with the rest of Europe. In France, around 58% of households live in their own homes, while this rate is substantially higher in Spain (83%) and Italy (69%). Unlike all these countries, the German median household is not an owner-occupied property. A similar rate to Germany can be observed in Austria (48%). In Switzerland, this rate is estimated to be even lower at 40%. Approximately 18% of German households own property in which they do not live themselves – this includes tenant households.”

  • Anonymous

    Hi JW

    There are various factors at play here I think. Firstly as the Bundesbank itself points out the Germans own relatively few houses.

  • Anonymous

    Hi Justathought

    If it were me looking for signs of such things I would be looking at the weaker banks of the countries in trouble. So for example news that short selling of the Italian bank Monte dei Paschi was banned today for 48 hours should put depositors there on what the Starship Enterprise called yellow alert I think.

    They might move to red alert as they consider yet more losses there which are a “surprise”. From Bloomberg.

    “The fourth-quarter net loss was 1.59 billion euros ($2 billion), the Siena-based lender said after the close of trading on March 28. The loss was more than double the 686.3 million-euro loss estimated by analysts in a Bloomberg survey.”

  • Anonymous

    Hi Ian
    The list of nations that must be getting nearer to getting rid of the Euro is gettung quite long however each of them has a political class wedded to the jobs and influence it gives them. Accordingly such barnacles will have to be removed first.

  • Anonymous

    Hi JW
    Rather ironically the fascist/strongman issue has been raised in the (odd in footballing terms) appointment of Paulo Di Canio at Sunderland has it not?
    Moving to a German/Italian issue todays article reminded me that both their unifications were relatively recent but the German state seems more durable. It is not often raised in the way that say Spain and the Catalans is/are but some parts of Italy may well be considering this subject.

  • Anonymous

    Germany has very tenant friendly laws and tenant associations who have the power to cap rents ( landlords cannot legally opt out) Housing shortages in Munich & Berlin may give slum landlords the chance to exploit poor migrants, but declining demographics in some areas (especially the East) depress sale prices & rents. German rental property looks a safer place than banks to save long term, but the ROI is low, there’s risk of potentially large maintenance costs and you need trustworthy local people to supervise it. Immigration toward Germany should decrease owner occupancy there.

    In Bulgaria owner occupancy is high (about 90%), as a result of the state gifting apartments & houses to their occupiers in 1990. This won’t add much to the median wealth – These uninsulated communist built tower block apartments with paint& plaster flaking off the facades have low values.

  • Anonymous

    Beware of countries with large ‘informal’ sectors outside the state’s statistics. Who knows what is going on there, and whether the size of the sector is constant or perhaps growing? Whatever the trends, in many southern countries it is very substantial and of course if included in the statistics, favourable. Perhaps they are really wealthier than us!