Last week, Exane organized the 16th European Seminar. According to our analysts David Finch and Micha Meinertz, companies do not appear to perceive high constraints on global growth. Top CEOs are optimistic about the near-term macroeconomic outlook, especially in China and the US. As far as the Eurozone is concerned, the picture that has emerged is less defined: it is certainly positive for the countries of Mediterranean Europe, which have witnessed a marked stabilization and an improvement in the economy, while the opinion on France is rather pessimist.
The latest market survey on the trend of economic activity indicates a contained but positive growth rate (approximately equal to 0,2-0,3% on a quarterly basis) despite the Eurozone countries showing a generalized loss of momentum of the manufacturing sector. As for France, our optimistic view on higher corporate margins still holds, although the country lags behind the current economic recovery. In one sense, the country's underperformance is a reflection of its resilience in recent years.
Indeed, France maintained a good performance during 2012-2013 (growth of 0,4% on average compared to -2,1% in Italy and -1,4% in Spain). However, on the other side of the coin, in 2014 France is the country that recorded the least acceleration of the growth rate (0,3pt vs 1,2pt in Germany, 1,9pt in Italy, 2,1pt in Spain). In France, one of the main problems this year is the performance of the real estate market. In fact, this year real estate investment has reached particularly low levels and the figure should have a negative impact on GDP growth by 0,4 percentage points.
The current situation is attributable to new rules, a less favorable tax regime with greater regulation on the current rules on rents as well as the increase in VAT on household expenses foreseen by the previous government. Furthermore, a further negative contribution could be made by the level of public investment in growth. In short, the government will have to modify some of the measures recently implemented and which penalize the sector but the effects of this will certainly not be visible before the end of next year.
The climate we perceived during our stay in Rome to meet officials and political advisers was different. In particular, we had the feeling that Renzi's reform program could have positive implications for the Bel Paese. There is no doubt that Renzi has gained popular support for his ideas, as evidenced by his success in the European elections. Italians are tired of the old political caste, old bad habits, etc.
Premier Renzi, who belongs to the new generation of Italian politicians, has well understood this generalized sentiment and is truly willing to reform the system. Given his great popularity, both trade unions and business representative organizations have somewhat lost some negotiating power and are now more cooperative towards government action. Even the Italian people have understood that this could be the last chance to correct the country's structural problems. However, we stress that reforms will take time. The implementation of a more stable electoral and legislative system, i.e. a constitutional reform that radically reduces the importance of the Senate, will take at least a year.
Similarly, administrative hurdles and legal simplification for business management will have to be implemented; but it will take time before we observe a significant impact on the Italian economy. This is why Renzi will definitely not touch the Italian pension system, even though it is very expensive; in doing so, in fact, it will keep its popularity intact and avoid major cuts in welfare at a time when the economy is still vulnerable.
Of course, we also discussed the financial problems of Italian SMEs in detail. The Bank of Italy seems to be quite positive on the latest measures adopted by the ECB. After many years characterized by high funding costs and high non-performing loans, the ECB is likely to significantly reduce the cost of funding to facilitate lending to businesses. However, the Italian financial authorities believe that further maneuvers can be implemented if necessary. Furthermore, the will to develop the loan securitization process in Italy clearly emerged. Although some "experiments", such as SME mini-bonds, have not met with high success, the financial authorities want to offer additional guarantees in favor of securitization in peripheral countries. Renzi will probably bring the issue of SME loan securitization as one of the main objectives of the Italian presidency of the Council of the European Union.
