News ID: 193523
Published: 0212 GMT May 26, 2017

Italy on the mend but strong recovery still far away

Italy on the mend but strong recovery still far away

Italy hosts the G7 summit of world leaders on Friday and, to Italians’ relief, the country can point to signs that it is sharing in the eurozone’s economic revival.

Data in the past month have shown that Italian business activity, house prices, investment and exports have been on the rebound, in some cases to their best levels in a decade, FT reported.

But the positive signs are not enough to lift the gloom over the economy. Signs of structural weaknesses are plenty, while a problematic banking system and softening consumer demand drag on growth prospects.

Take one bit of good news first: the end of the freefall in house prices, which are down by 24 percent since their peak in 2008. According to available data, last year Italy and Cyprus were the only EU countries where house prices were still contracting, but in the last quarter of 2016 they finally registered an expansion of 0.1 percent over the previous year. 

The outlook for the property market is definitely 'favorable', according to the Bank of Italy. Figures for 2016 from the housing think-thank Nomisma show the largest share of real estate agents recording increases in house sales since 1999.

The end of the housing crisis is no small matter in a country where about 43 percent of non-performing loans of companies piling up in the troubled banking system are linked to construction and real estate companies. 

In March this year the amount of real estate bad debt declined by €48 million over the previous month — only the fourth monthly reduction since 2011. 

The prices of non-residential properties have also stabilized, partly because of above-trend investment growth. 

In the last quarter of 2016, gross fixed capital formation expanded at an annual rate of 4.3 percent, the strongest reading in 10 years, and contributed to the largest proportion of GDP growth in over a decade.

Tax incentives and other government measures were introduced last year to encourage companies to invest in assets, such as software and IT systems for the technological and digital transformation of production processes. 

But the strength “partly reflects the low starting point, with business investment increasing from extremely low levels”, said Ken Wattret, economist at TS Lombard. Investment levels are still 25 percent lower than at the start of 2008. 

Italy also gained from a weak euro and stronger-than-expected economic growth in Europe. In March 2017, the value of goods exported increased at an annual rate of more than 12 percent, the highest since 2011. 

   
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