Signs of recovery in Southern Italy

Signs of recovery in Southern Italy

1 August 2017

sonia.neri@prometeia.com

After growing above the national average in 2015, Southern Italy performed in 2016 in line with overall economy, but better than the Central and North Western regions. Also the available information for 2017 confirm a trend of moderate growth

 

Data for 2016 released by Istat report a higher GDP growth in Southern Italy, aligned with the Italian average, just behind the North Eastern regions, leading the national ranking mainly thanks to the sustained dynamics of services. The growth of this area was driven, in particular, by industry whose value added, after decreasing between 2008 and 2014, has returned to growth in 2015 and, above all, in 2016. The more disappointing performance of Central Italy, at least in the short term, was mainly stemmed from the sluggish growth of the services sector.

Prometeia’s latest territorial estimates  suggest that the upward trend of Southern regions will continue and it should benefit from the acceleration of Italy’s GDP growth, as reflected in the most recent forecasts for the current year. So, in 2017 South Italy’s growth is forecast at 1,1%, slightly below the performance (1,3-1,4%) of the Northern regions.

Business climate of the southern manufacturing firms improved in the first six months of 2017, in line with the national and North Western Italy’s trends [2]. Moreover, the business dynamics, albeit only relative to the first quarter, suggest a still negative development (-0,2%), but better than the other macro-regions.

 

In 2017-2018 an intense investment trend in Southern Italy

In 2017-2018 the North East of Italy is projected to record the highest growth, followed by the North West area, which should perform better in industry. In Southern Italy GDP will increase just below the Italian average while the Central regions should lag behind, penalised by more sluggish developments both in industry and services.

The Northern area might benefit in 2017-2018 from the highest growth of investment but also in Southern Italy investment will increase at relatively strong rates, also thanks to the support measures (as Industry 4.0 and the Juncker Plan). The gap from the pre-crisis levels is still wide, but the results of the last years bode well for the future.

Southern households look more cautious in consumption as employment is slowing down. In Northern regions consumer spending would be still driven by rising disposable income.

In Central Italy exports are forecast to prove more dynamic, while the main components of domestic demand are set to expand slower than the Italian average. In the first quarter of 2017 Southern exports increased more than other areas, although they still account for just over 10% of Italian exports.

 
Fig. 1 Unemployment rate (% of the labour force)
Fig. 1 Unemployment rate (% of the labour force)
Source: Prometeia, Scenari per le economie locali, July 2017.
 

Employment on the rise in 2017

In 2017 employment is expected to keep on growing but to slowdown in all areas. A more subdued growth is estimated in Central-Southern Italy. This will result in a rising unemployment rate in most Southern regions, respect to a decrease in almost all the Central and Northern regions. (Figure 1). In 2018 the units of labour will continue to decline in all areas, confirming a relatively better performance in North Italy.

Labour market conditions are still a concern, especially for Southern regions, as the employment rate is forecast to remain at 19.4% in 2020, more than 7 percentage points higher than in 2008 (3,8 percentage points in Italy and 2,3 in the Northern and Central area). Several signs are worrying: a rising female unemployment rate (22,1% in 2016 compared to 11,8% in Italy) and a substantially stable long-term unemployment rate (12,5% in 2016 vs 6,7% at national level). The only positive note is the drop of youth unemployment rate (most likely due to the emigration of young workers from the South), which still remains above 50%, a truly exceptional level if compared to 8,8% of Bolzano.

 
 

[1] Further analysis in Prometeia, Scenari per le economie locali, July 2017.
[2] Further analysis in Prometeia, Congiuntura regionale, July 2017.

TAG