Deindustrialization 2008-2013
The contraction of the GDP lasted for 6 years, and only in 2013 it seems to have stopped. In Italy, the so-called "Great Recession" meant an overall fall of more than 8 percentage points in GDP between 2007 and 2013. If we consider per capita GDP, the loss is 11 percentage points, greater than both in Germany and in France, and compared to the European average.
Industrial production, which in the post-war years had a fundamental contribution to the economic development of the country, decreased in 2013 by about a quarter compared to pre-crisis levels. One of the main consequences is that production capacity is in excess of today's production needs dictated by very weak demand, and decidedly lower than those that had guided investment decisions in the past. This, together with the difficulties in accessing credit, has led to a downward revision of investment spending.
Partly because the number of companies has decreased, partly because investment decisions have been considerably scaled back, investment spending in 2012 was almost 23% lower than in the period preceding the crisis. The crisis thus marked an important discontinuity in the process of capital accumulation, in particular for the industrial sector: losses in production levels led to disinvestments, divestment of capital, closure of factories and businesses. Such a prolonged period of lack of investment has important effects on Italy's potential growth, because there is the risk of losing one or more waves of innovation, a crucial factor for an economy already characterized by a deceleration in productivity.
In essence, the support of bank credit and of domestic demand in particular, of public demand (which cuts orders and does not even pay for what it buys), is decreasing, leaving only the support of foreign demand. Consumption is declining above all in the durables sector (cars, household appliances,…), due to a drop in the disposable income of families who spend less and save more. The spending decisions of households are also influenced by the dramatic situation on the labor market. Employment is one of the few variables that hasn't stopped falling yet: in 2013 the number of employed people decreased by 2.5% compared to 2012, resulting in 585 fewer jobs and affecting in particular the younger age.
In industry, compared to pre-crisis levels, there are 600 fewer workers. In addition, the number of employees on the redundancy fund increased, which in the first quarter of 2013 was estimated to be 4% of workers in the industrial sector. Precarious forms of work are also on the rise, such as fixed-term and project-based contracts, which increase the uncertainty of families. Household income continues to decline and in 2013 it returned to the levels of the late 80s.
How much of this will be remedied by the next recovery which, not surprisingly, continues to be greeted with disbelief? Much depends on what the "Darwinian selection" of the last 6 years has already done or still has to do.
Due diligence at the end of 2013
The drop in domestic demand and the rationing of credit (global at the end of 2008, after the disappearance of Lehman; and only in the European periphery since 2010, after the bankruptcy of Greece) have caused that "selection" of Italian industry which better governed countries (Germany of ten years ago !) they had anticipated for years.
Suppose we are an "intelligent bank" that has to decide whether or not to finance the next recovery of one of our industrial enterprises. How does he know if that company has a future?
Three seem to be the main factors to consider. Together they help to understand the probability of a company, still active today, of also having a future.
- The first relevant factor is the size. For a series of reasons (earnings fund; political and trade union reactions; support from bank creditors) the possibility that a company is still viable today is relevant the smaller its size (in other words, it means that the bulk of the small businesses have already done it).
- The second factor refers to the sector to which they belong. As can be seen from the attached table, there are sectors where industrial production has had the greatest fall, but is already recovering (typically: means of transport; rubber and plastic), and others which, on the contrary, have fallen slightly, but continue to fall (typically food).
- The third factor concerns the dependence (direct or indirect) on domestic demand or on foreign demand. This is what we have already seen in recent years and it remains relevant for the future as well: companies that rely on foreign demand have one more card than those that only cater to domestic demand. Over the last few quarters, foreign demand has held steady, and exports have shown a slight improvement. However, there are strong limits and risks to relying on an export-driven recovery. In addition to the usual limitations of low Italian productivity and the risks associated with possible devaluations of foreign currencies, as has already occurred with the Japanese yen and evidenced by a slight appreciation of the euro against the dollar, there are other factors which cast doubt on the competitiveness of Italian products.
According to REF Ricerche, one of the main obstacles is geographical specialization: we are still not very present on the most dynamic markets, such as the emerging Asians. The share of exports directed to these markets is just over half that of Germany, and is also lower than that of France. The scarce presence in Asia is due to various factors, including the small average size of Italian companies, which makes the presence in such distant markets more complex, but also to a production specialization in some ways more similar to that of Asian producers. Looking ahead, the lack of presence in Asian markets may be a problem, as these are expected to grow even faster than the rest of the world economy.
Could the Government (assuming there is) do more?
Based on what was said in the previous two paragraphs, we have a probable scenario for 2014 which is not very optimistic: we take comfort in knowing that the fall is ending, and that the bulk of the adjustment has already occurred.
Is there anything in the already decided economic policy which, if implemented in the coming months, leads to greater optimism? The Deputy General Manager of the Bank of Italy Luigi Federico Signorini already reports his first opinion, which is summarized in the In-depth Report.
First of all, we must reiterate (as underlined by Matteo Bugamelli, Bank of Italy) that the recovery of the Italian economy cannot do without the revival of industry. The industry represents a fundamental contribution to innovation and Italian exports. The strategy that is needed is based on two pillars. The first aims to improve the allocation of resources through structural reforms concerning social safety nets and active policies for labour, the financial system, competition and the fight against corruption and illegality.
The second, on the other hand, aims to reduce the costs of businesses, acting on the reduction of the tax and social security wedge, and of the taxes and system charges which weigh on the cost of energy. Added to these are the reforms aimed at eliminating the complexity of the regulatory framework for businesses, the inefficiencies of the Public Administration and civil justice; the uncertainty of the regulatory framework and the lack of public services and some infrastructures.
In conclusion, rather than from the recovery that has now begun, the possibility of recovering the levels of industrial production that we still had six years ago depends only on the implementation of that set of reforms that we are used to considering complementary: make the market work better, and modernize and/or reduce everything public.
