Is Southern Italy still bringing up the rear?

3 March 2017

sonia.neri@prometeia.com

In 2015, faced with a slowdown in global economy and shrinking expectations for the recovery of Italy, the South of the country closed the year with a GDP growth exceeding 1%. However, the structural fragility stemming from issues of competitiveness, in turn correlated to the sectoral composition and size of the enterprises prevents sustained growth in southern economy

The review of the national scenario, the new regional accounts disclosed by Istat in December have resulted in a revision of the October estimates for the past year. The upward revision of Italian economy in 2016 has concerned all territorial subdivisions, except for the central area. 2016 should end with GDP trends that are more buoyant in the North and weaker in the South of Italy.

The greatest performance of the North East in 2016 is the result of the stimulus from all the chief demand entries. Exports have increased by 1.9% (1% in Italy) with a particular liveliness at mid-year; household consumption, favoured by the growth in employment, by a more relaxed climate of trust and by the healthy performance of disposable income, mark a development equal to 1.7%, the strongest across the subdivisions.

Investments, positively affected by the improved conditions governing access to the tax credit, by the driving force offered by the other components of demand, and specifically export, and by incentives, have grown by over half a percentage point higher than Italy.

The North West, while presenting a more intense growth than that in Central and Southern Italy, has been affected by the drop in exports, characterised by disappointing developments, especially in the first half of the year. Nevertheless, this has not in any case prevented investments from growing more than at the national level, whereas household consumption has confirmed the recovery that is ongoing since 2014.

For Central Italy, the estimate of growth at 0.7% is confirmed in 2016. Household consumption displays a development not unlike the one observed in the North and the export performance is relatively sound. Conversely, the trend of investments is more modest, especially following the difficult recovery of the construction sector. Besides, the climate of trust of the manufacturing enterprises has been characterised by a deterioration in the final part of the year, which may have contributed to the scaling down of investment decisions.

For the South of Italy, a carry-over effect in 2016 of the positive results achieved in 2015 contributes to a slight upward revision of the estimates as compared to the October forecasts. Last year, GDP in the South grew by 0.6%, with a slower performance, particularly in domestic demand, as compared to the North of the country. Household consumption, while recovering from the crisis years, grows less than at national level. Apart form the prudent approach of southern consumers, a more limited growth in disposable income impacts this trend. Prudence also in the investment choices made by enterprises, that coupled with a still struggling construction market result in an estimate of growth in investments aligned with the performance of the central area of the country.

The slowdown expected for Italian growth in 2017 will concern all subdivisions. In the North, GDP should grow at around 1%, compared to 0.6% in Central Italy and 0.3% in Southern Italy. The key components of domestic demand will slow down, whereas the acceleration of export will tend to favour areas with a greater international perspective more. Once again this year, only Northern regions will grow more than the national average.
2017 will reach a natural decline in employment growth; Southern Italy especially will suffer as a result of this, as in the last two-year period it has more greatly benefited from a rise in the number of jobs. After reaching its peak in 2014, the unemployment rate has started to decrease slowly but surely in all subdivisions. This trend will continue in coming years, but at the end of the decade the values, estimated in a historical perspective, will in any case still be high: 18.7% in the South of the country (12% in 2008), as compared to 5.8% in the North East (3.4% in 2008).

Thus, the territorial gaps show no signs of decreasing in the medium-term, whereby the discrepancy between Southern and Central-Northern Italy remains significant. By the end of the decade, however, the GDP per capita will not recover pre-crisis levels in no geographical subdivision, even if the greatest divide will be registered in Central Italy.

Fig. 1 -The trend of GDP (% variation, chain-linked data)
Source: Prometeia, Scenari per le economie locali , January 2017

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