1. The Italian economy Strenghts, weaknesses, issues and short term outlook
Alessandro Terzulli – SACE SRV
Ljubljana, March 2012
FILE

2. There’s something about Mario…

3. Italy: the BTP-Bund spread rally
Public debt (in % of GDP)
Change of Government
Source: Bloomberg 3

4. Higher public debt but lower total debt
Total debt by nature (in % of GDP, 2010)
Total debt by country (% of GDP, 2010)
Source: SACE on Cecchetti et al. (2011) data
Source: SACE on Cecchetti et al. (2011) data 4

5. Public debt (in % of GDP)*
Low increase in public debt throughout the crisis
Public debt (in % of GDP)*
*General Government Gross Debt
Source: SACE SRV on IMF data 5

6. Public debt mainly held at a domestic level
Non resident holding of public debt
(in % of total, 2010)
Government MLT bonds by resident holder
(in % of total, end- 2009)
Source: SACE SRV on IMF data
Source: SACE SRV on IMF data
Relevance of households 6

7. Overall Fiscal Balance General Government CAB * (% of GDP)
Budget breaking-even in 2013 (adjusted for the cycle)
Overall Fiscal Balance
(in % of GDP)
General Government CAB * (% of GDP)
* CAB: Cyclically adjusted balance: Balance adjusted to exclude the effects of the economic cycle and excluding net interest payments
Source: SACE SRV on IMF data
Source: SACE SRV on IMF data 7

8. Winds of change (1)
December Salva Italia (“Save Italy”) Law: fiscal adjustment worth €30 billion over three years on top of the summer austerity package (€ 59.8bn through 2014).
Deficit target 2012: 1.6% of GDP; balanced budget by Primary balance over 4% of GDP by 2013 and trend inversion on public debt to GDP dynamic;
Main measures: pension system reform (tightening eligibility for early retirement, reducing pension indexation, accelerating the increase in retirement ages) ,“local” transfer cuts, new taxation on previous “tax shield” (1.5% on funds declared ), fight evasion conditioned on financial transaction, “luxury tax”, reintroduction of real estate taxation on primary residences, 1 % point rise in VAT rate, state guarantees for bank liabilities;
Effect: 1% fall in GDP in 2012; flat GDP in 2013 (Moody’s).
January Crescitalia (“Grow Italy”) decree: package to improve market competition, build new infrastructure and reduce excessive bureaucracy.;
Main measures: minimum fees for professional services will be abolished, simplified procedures to start new companies, higher degree of competition in fuel distribution, less stringent rules for opening new pharmacies (5,000 more pharmacies), more taxi licenses according to local needs;
Effect: 8% increase in productivity in 10 years (OECD).

9. Winds of change (2)
January 2012 – Fitch Rating Downgrade : “The intensification of the Eurozone crisis in the latter half of last year...highlighted the financing risks faced by Eurozone sovereign governments”.
However, there is a strong commitment of the new Italian government to balance the country's budget and make Italy a better place to do business.
N.B. Clear time lag in rating agencies’ downgrades and markets’risk perception. Downgrades end up not producing the desired effect (e.g. US downgrade, August 2011).
February Labour market reform: negotiation with employers and unions to produce a new agreement on labour.
Measures: more support to women and young workers and more flexible hours, reduction of the 46 types of contract, especially those so-called “precarious”, reform aimed at reducing firing costs, unemployment benefits.
AND MORE TO COME…

10. A large industrial base
Manufacturing production share
(in % of World production, 2010)
Per capita manufacturing production (Euros)
Source: SACE SRV on CSC data
Source: SACE SRV on CSC data
7th largest World producing country, 2nd in per capita terms 10

11. Generalised industrial production worsening
Industrial production by sector (% change)
Source: Istat
Technical recession in H Recession in 2012 as well 11

12. Increasing payment delays…
Firms with “serious payment delays” (in %)*
Insolvency Ratio* by sector
Source: SACE SRV on Cerved data
* Numbers on the histograms are growth rates in %
Source: SACE SRV on Cerved data
* Number of defaults any 10 thousands firms analyzed by sector
Decreasing insolvency ratios, still at high levels 12

13. GDP and number of defaults (% changes)
Defaults will not decrease before 2014
GDP and number of defaults (% changes)
Source: SACE SRV on Istat and Cerved 13

14. ? ? ? Thank you for your attention!
Alessandro Terzulli
SACE SRV Head of Economic Analysis and Research
Tel
SACE SRV is a member company of SACE group and provides business information and debt recovery solutions