Germany's unemployment rate fell to the lowest level in 15 years in January with manufacturers adding staff to meet global demand for their products. The German unemployment rate, adjusted for seasonal swings, dropped to 8.1 percent, the Federal Labor Agency in Nuremberg said today. The adjusted number of people without work fell by 89,000 to 3.41 million.
Employment growth remained robust in December 2007. According to provisional calculations of the Federal Statistical Office, the number of persons in employment in December was up by 596,000 or 1.5% on December 2006. Compared with November 2007 the number of persons in employment was down by 139,000, which was a smaller decline than is usual at this time of the year. In December 2007, there were 40.15 million persons in employment whose place of residence was Germany.
The relative increase compared with December 2006 (+1.5%) was slightly smaller than the respective increases for September, October and November (+1.6% each on a year earlier). However we need to take into account of the favourable employment situation in December 2006 (the high base effect).
As is usual at that time of the year, the number of people in employment decreased in December 2007 on the previous month. Compared with November, it was down by 139,000. That was a markedly smaller decrease than the November-to-December decreases observed on an average of the previous five years (–178,000).
The impression of robust growth is supported by the trend of the seasonally adjusted number of persons in employment, that is upon elimination of the typical seasonal fluctuations. Compared with November, the number was up by 37,000 persons. The growth of the seasonally adjusted number of persons in employment even increased slightly since July.
Based on the labour force survey, Destatis published a seasonally adjusted 3.35 million unemployed for December 2007. Compared with the same month a year earlier (December 2006), the number of unemployed was down by 530,000 persons or 13.6%. The seasonally adjusted unemployment rate – which is harmonised at the EU level and measured as the share of unemployed in the total labour force – amounted to 7.8% and was thus considerably below the level of the corresponding month of the previous year (9.0%).
Thursday, January 31, 2008
German Retail Sales Q4 2008
Retail sales in Germany unexpectedly fell for a third consecutive month in December as higher inflation continued to sap consumers' spending power.
According to provisional results of the Federal Statistical Office retail trade decreased in December 2007 a nominal 4.9% and a real 6.9% compared with the corresponding month of the previous year. The number of days open for sale was 24 in December 2007 and 24 in December 2006, too. Obviously there is a certain base effect here given the pre VAT increase in sales in December 2006, but still, the level is really shockingly low.
When adjusted for calendar and seasonal variations (CENSUS-X-12-ARIMA), the December 2007 turnover was in nominal terms 0.4% and in real terms 0.1 smaller than that of the preceding month.
In 2007 turnover in retail trade in Germany was in nominal terms 1.2% and in real terms 2.2% smaller than that of the previous year.
Sales, adjusted for inflation and seasonal swings, declined 0.1 percent from November, when they dropped 1.9 percent, the Federal Statistics Office in Wiesbaden said today. Germans seem to have maintained a rather discrete level of spending after inflation accelerated last year to the fastest pace since records began in 1996, driven by a higher sales tax and rising energy prices. Retail sales fell for a fourth month in January, the Bloomberg PMI showed yesterday.
Consumer prices rose 3 percent from a year earlier in January using a harmonized European Union method, the statistics office reported today. That's well above the European Central Bank's 2 percent limit on annual price gains.
Consumer spending appears to have been hit recent by fears about inflation – German retail sales fell by 1.8 per cent in the fourth quarter of last year, according to official figures. Employment data appeared to paint a more upbeat picture - German seasonally-adjusted unemployment fell by a sharper-than-expected 89,000 this month to the lowest level for 15 years - however unemployment trends have a well known tendency to lag behind other developments in economic activity.
Eurozone inflation has soared to a 14-year high of 3.2 per cent, adding to the European Central Bank’s case a hard-line stance on future interest rate moves.
The unexpected rise from 3.1 per cent in December suggests that the “hump” in inflation caused by higher energy and food prices will prove larger and longer-lasting than anticipated by the ECB. January’s rate was the highest since the Frankfurt-institution took responsibility for monetary policy in the region in 1999.
According to provisional results of the Federal Statistical Office retail trade decreased in December 2007 a nominal 4.9% and a real 6.9% compared with the corresponding month of the previous year. The number of days open for sale was 24 in December 2007 and 24 in December 2006, too. Obviously there is a certain base effect here given the pre VAT increase in sales in December 2006, but still, the level is really shockingly low.
When adjusted for calendar and seasonal variations (CENSUS-X-12-ARIMA), the December 2007 turnover was in nominal terms 0.4% and in real terms 0.1 smaller than that of the preceding month.
In 2007 turnover in retail trade in Germany was in nominal terms 1.2% and in real terms 2.2% smaller than that of the previous year.
Sales, adjusted for inflation and seasonal swings, declined 0.1 percent from November, when they dropped 1.9 percent, the Federal Statistics Office in Wiesbaden said today. Germans seem to have maintained a rather discrete level of spending after inflation accelerated last year to the fastest pace since records began in 1996, driven by a higher sales tax and rising energy prices. Retail sales fell for a fourth month in January, the Bloomberg PMI showed yesterday.
Consumer prices rose 3 percent from a year earlier in January using a harmonized European Union method, the statistics office reported today. That's well above the European Central Bank's 2 percent limit on annual price gains.
Consumer spending appears to have been hit recent by fears about inflation – German retail sales fell by 1.8 per cent in the fourth quarter of last year, according to official figures. Employment data appeared to paint a more upbeat picture - German seasonally-adjusted unemployment fell by a sharper-than-expected 89,000 this month to the lowest level for 15 years - however unemployment trends have a well known tendency to lag behind other developments in economic activity.
Eurozone inflation has soared to a 14-year high of 3.2 per cent, adding to the European Central Bank’s case a hard-line stance on future interest rate moves.
The unexpected rise from 3.1 per cent in December suggests that the “hump” in inflation caused by higher energy and food prices will prove larger and longer-lasting than anticipated by the ECB. January’s rate was the highest since the Frankfurt-institution took responsibility for monetary policy in the region in 1999.
German Consumer Prices January 2008
According to a first provisional estimate of the Federal Statistical Office (Destatis), the consumer price index for Germany is expected to rise by 2.7% in January 2008 over January 2007 (December 2007: +2.8%). Compared with the preceding month, the rate of change will be –0.3%.
The estimate is not based on the results of six Länder, as would be usual, but rather has been arrived at on a limited data basis with more forecasting was applied than usual. Consequently, the result here involves larger uncertainties. The reason is that the regular changeover of the consumer price index from base year 2000 to the new base year 2005 has not been completed yet.
On 29 February 2008, the final result for January 2008, the provisional result for February 2008 and recalculated results from January 2005 on the new basis 2005 = 100 will be released. Then the price trend will be shown in a breakdown by product groups again.
The year-on-year rate of change of the harmonised consumer price index for Germany, which is calculated for European purposes, is estimated at +3.0% for January 2008. In December 2007, the rate of change was +3.1%. Compared with the previous month, the index will be down by 0.3% in January 2008.
The estimate is not based on the results of six Länder, as would be usual, but rather has been arrived at on a limited data basis with more forecasting was applied than usual. Consequently, the result here involves larger uncertainties. The reason is that the regular changeover of the consumer price index from base year 2000 to the new base year 2005 has not been completed yet.
On 29 February 2008, the final result for January 2008, the provisional result for February 2008 and recalculated results from January 2005 on the new basis 2005 = 100 will be released. Then the price trend will be shown in a breakdown by product groups again.
The year-on-year rate of change of the harmonised consumer price index for Germany, which is calculated for European purposes, is estimated at +3.0% for January 2008. In December 2007, the rate of change was +3.1%. Compared with the previous month, the index will be down by 0.3% in January 2008.
Wednesday, January 30, 2008
Italian Inflation January 2008
Italy's inflation rate in January rose to its highest in at 11 years, driven by rising energy, transportation and food costs. Consumer prices calculated for the European Union harmonised CPI standards rose by 3.1 percent from January 2007, the fastest rate since this particular index was created in January 1997, according to data from the Rome-based national statistics office (ISTAT) today. Prices fell 0.8 percent from December because of post-Christmas retail discounts, and even though this fall was sharper than the 0.4% fall registered in January 2007 the rate still shot up due to the strong base effects of previous months. However, it is not at all clear what happens now, since the Italian economy is evidently slowing fast, and the drop in prices from December is significant.
The most significant impact of this inflation data in the short term is that it virtually guarantees that the European Central Bank will keep interest rates at a six-year high of 4% when they meet on Feb. 7 since according to their statues inflation has to be a greater concern than slowing economic growth. Inflation in the 15 nations sharing the euro accelerated to a 14-year high of 3.2 percent in January according to the recent flash estimate, overshooting the bank's 2 percent limit for a fifth month.
In Italy, transportation costs, which include gasoline, rose 0.4 percent from a month ago, according to the national (NIC) index. No breakdown is given at this point of the EU-harmonized index, since this awaits the official publication by eurostat later in the month. Prices of housing, water, electricity and fuel jumped 1.5 percent in the month. Food and beverage costs rose 0.6 percent from December.
The most significant impact of this inflation data in the short term is that it virtually guarantees that the European Central Bank will keep interest rates at a six-year high of 4% when they meet on Feb. 7 since according to their statues inflation has to be a greater concern than slowing economic growth. Inflation in the 15 nations sharing the euro accelerated to a 14-year high of 3.2 percent in January according to the recent flash estimate, overshooting the bank's 2 percent limit for a fifth month.
In Italy, transportation costs, which include gasoline, rose 0.4 percent from a month ago, according to the national (NIC) index. No breakdown is given at this point of the EU-harmonized index, since this awaits the official publication by eurostat later in the month. Prices of housing, water, electricity and fuel jumped 1.5 percent in the month. Food and beverage costs rose 0.6 percent from December.
Italy Retail Sales November 2007
Well while all our eyes were focused on what was happening in and around the Italian parliament ISTAT released the November retail sales data last Friday. Italian retail sales rose 0.3% on year in November. Food sales increased at a 2% annual rate, while non-food sales fell 1%. Retail sales dropped 0.3% on a monthly basis in November, reversing 0.4% growth recorded in October. This data is slighly at variance with the picture being presented in the PMI readings, and it is hard to know how to interpret this difference. What is clear is that October was a good month, while sales evidently dropped back again in November. What is most pronounced if we look at the chart is how even though 2006 and 2007 were pretty favourable years in terms of Italian GDP growth, retail sales have continually struggled to grow.
Tuesday, January 29, 2008
Italy Retail Sales PMI January 2008
Italian retail sales dropped in January at the fastest rate in four years as accelerating inflation coupled with a bleaker economic outlook discouraged consumers from spending, according to the latest reading given by the Bloomberg purchasing managers index. The seasonally adjusted index of retail sales dropped to 43 from 44.7 in December. The index is based on a monthly survey of 440 executives compiled for Bloomberg by NTC Economics. The reading has remained below 50, the level that signals a contraction in sales, since February 2007.
About 33 percent of retailers surveyed said they missed their sales targets this month, with only 5 percent reporting they beat their expectations. ``Weak economic conditions and poor disposable income'' were to blame, NTC said. Hiring by retailers fell in January for the first time since October to a 15-month low, partly because workers who quit were not being replaced, the report said.
About 33 percent of retailers surveyed said they missed their sales targets this month, with only 5 percent reporting they beat their expectations. ``Weak economic conditions and poor disposable income'' were to blame, NTC said. Hiring by retailers fell in January for the first time since October to a 15-month low, partly because workers who quit were not being replaced, the report said.
Italian Business Confidence January 2008
Really this is just a brief follow up to this more extensive post yesterday, but as is hardly surprising in the present environment Italian business confidence declined to a two-year low in January as a bleaker economic outlook hurt consumer demand for manufactured products. The Isae Institute's business confidence index fell to 91.6 from a revised 91.7 in December. That is the lowest since December 2005, when the index was 91.4.
The economic outlook for Italy's economy has steadily deteriorated over the last year, and especially given the need to export to obtain growth and the euro's 14 percent increase against the dollar over the past year which has undoubtedly dammaged ex-EU exports at a time when rising oil prices are increasing inflation and manufacturing costs. Both the Bank of Italy and Confindustria, Italy's largest employers' lobby, have cut their growth forecast for 2008 to 1 percent, about half the pace of last year.
Another factor threatening confidence going forward is the collapse of Prime Minister Romano Prodi's government on Jan. 24 after 20 months in power. President Giorgio Napolitano ends four days of consultations with Italy's main political parties today, and we are still waiting to see if a new government can be cobbled together or if new elections will be held.
The economic outlook for Italy's economy has steadily deteriorated over the last year, and especially given the need to export to obtain growth and the euro's 14 percent increase against the dollar over the past year which has undoubtedly dammaged ex-EU exports at a time when rising oil prices are increasing inflation and manufacturing costs. Both the Bank of Italy and Confindustria, Italy's largest employers' lobby, have cut their growth forecast for 2008 to 1 percent, about half the pace of last year.
Another factor threatening confidence going forward is the collapse of Prime Minister Romano Prodi's government on Jan. 24 after 20 months in power. President Giorgio Napolitano ends four days of consultations with Italy's main political parties today, and we are still waiting to see if a new government can be cobbled together or if new elections will be held.
French Consumer Confidence January 2008
Consumer confidence in France dropped to a record low in January as accelerating inflation squeezed purchasing power. A gauge of consumer sentiment fell to minus 34, the lowest since the index was introduced in 1987, from a revised minus 30 in December, Insee, the Paris-based national statistics office, said today.
A gauge of people's personal financial situation slipped to minus 25 from minus 23, the Insee report showed. A sub-index evaluating the outlook for standards of living plunged to minus 44 from minus 32.
A 68 percent increase in oil prices the past 12 months has pushed France's inflation rate to the highest in almost four years. President Nicolas Sarkozy's popularity dropped to the lowest since he took office in May as higher prices deepened concern he'll fail to fulfill his pledge to boost living standards, two opinion polls showed this month.
French consumer prices rose at an annual rate of 2.8 percent in December, up from 2.6 percent in November, Insee said Jan. 15. Crude oil reached a record $100.09 a barrel in New York this month and is now trading about $90.
A gauge of people's personal financial situation slipped to minus 25 from minus 23, the Insee report showed. A sub-index evaluating the outlook for standards of living plunged to minus 44 from minus 32.
A 68 percent increase in oil prices the past 12 months has pushed France's inflation rate to the highest in almost four years. President Nicolas Sarkozy's popularity dropped to the lowest since he took office in May as higher prices deepened concern he'll fail to fulfill his pledge to boost living standards, two opinion polls showed this month.
French consumer prices rose at an annual rate of 2.8 percent in December, up from 2.6 percent in November, Insee said Jan. 15. Crude oil reached a record $100.09 a barrel in New York this month and is now trading about $90.
France Retail Sales PMI January 2008
Yet one more time France seems to be different. Even as retail sales weakened or fell all across the eurozone in January, in France they seem to have been rising. European retail sales fell for a fourth month in January as rising fuel, utility and food prices left shoppers with less money to spend, the Bloomberg purchasing managers index showed. The gauge of sales in the euro region was a seasonally adjusted 48.1, compared with 46 in December. A reading below 50 indicates a decline. The index is based on a survey of more than 1,000 executives compiled for Bloomberg News by NTC Economics Ltd.
The International Monetary Fund yesterday lowered its forecast for economic growth in the 15 euro nations to 1.6 percent from 2.1 percent as the fallout from the U.S. housing recession spreads. The region's economy expanded 2.6 percent last year.
A gauge of Italian sales dropped to 43 from 44.7, the biggest monthly decline since the survey began four years ago.
In Germany, Europe's largest economy, the index showed a decline, registering 44.2 after 44.
And yet in France the index rose to 56.2 from 49.1. What this actually means remains to be seen, nonetheless we will keep watching.
The International Monetary Fund yesterday lowered its forecast for economic growth in the 15 euro nations to 1.6 percent from 2.1 percent as the fallout from the U.S. housing recession spreads. The region's economy expanded 2.6 percent last year.
A gauge of Italian sales dropped to 43 from 44.7, the biggest monthly decline since the survey began four years ago.
In Germany, Europe's largest economy, the index showed a decline, registering 44.2 after 44.
And yet in France the index rose to 56.2 from 49.1. What this actually means remains to be seen, nonetheless we will keep watching.
Monday, January 28, 2008
Italy's Job Rich Recession?
Italy is currently entering into what offers all the indications of being a major political gridlock. Manuel Alvarez perceptively entitled his summary and analysis of Prodi's first resignation offer in February 2007 "A crisis is born in Italy", could it be that the subsequent the crisis he then anticipated is now finally about to arrive?
Whatever the outcome of what is going to be the 32 confidence vote in only 21 months the social and economic backdrop to the crisis will remain. The Italian economy is now slowing visibly, and the Bank of Italy only last week lowered their growth forecast for the Italian economy to a mere 1%. Given what is happening even as I write in global stock markets and (whatever the immediate upshot to tomorrow's vote) Italy's obvious political instability even this may be an optimistic estimate (see my 2008 forecast here). Italy's real problem is, however, neither so immediate nor so dramatic, since if we look at the chart I present below what we can see is that Italy has been suffering from a process of congenital slow growth in the much longer term.
Whatever the outcome of what is going to be the 32 confidence vote in only 21 months the social and economic backdrop to the crisis will remain. The Italian economy is now slowing visibly, and the Bank of Italy only last week lowered their growth forecast for the Italian economy to a mere 1%. Given what is happening even as I write in global stock markets and (whatever the immediate upshot to tomorrow's vote) Italy's obvious political instability even this may be an optimistic estimate (see my 2008 forecast here). Italy's real problem is, however, neither so immediate nor so dramatic, since if we look at the chart I present below what we can see is that Italy has been suffering from a process of congenital slow growth in the much longer term.
In what follows I intend to step back from the precipice a bit, and take a rather longer term look at one feature of Italy's economic performance, its labour and employment market. In this sense this post is going to form part of a "tripple whammy" I am working on, where I will attempt to carry out an in depth examination of possible connections and interconnections which may exist between population ageing, rapid job creation and weak internal consumption in three key G7 economies: Italy, Germany (see here) and Japan.
Rising-Employment Falling-Consumption?
Well lets start by looking at the story so far, at least as far as Italy goes. Fortunately we do have a number of key stylised facts at our disposal. First off, unemployment has been steadily - I could say relentlessly - dropping in Italy over the last two or three years:
and new jobs have been created, lots of them:
Yet at the same time domestic demand has not been revived to anything like the extent that might have been expected. Retail sales have been in decline for most of the last year as you can see from this retail-sales purchasing-managers-index for Italy (remember that on the PMI reading, anything below 50 represents a contraction).
Meanwhile private household consumption, despite some early strengthening, could hardly be said to have been booming. We did see a couple of (in Italian terms) comparatively strong quarters in the first half of 2007, but then, surprisingly - as can be seen in the chart below - the rate of increase began to weaken in Q3, while, curiuosly, in the position in the Italian labour market remained, more or less, stable.
So how can we account for this apparent paradox of a steadily tightening labour market and deteriorating internal consumer demand? One explanation for this could, of course, be that labour market performance is a lagged indicator (that is that it only registers economic deterioration after other indicators have been pointing to red for some time, and this is surely true), but could there not be something more going on here? Especially since this kind of pattern is being repeated in Germany and Japan, and these two countries have, along with Italy, the highest global median age, and as a result the highest proportions of potential workers in the older age groups. There is something very different about the labour market tightening we are seeing in Italy, Japan and Germany, for example, and the kind of inflation generating labour market tightening which we are observing in Eastern Europe. So why this difference?
Italy's Age Structure
But first off let's take a look at one of the younger age groups for a minute, the 15 to 24 one. As is well known this group is now in historic decline as a proportion of the total Italian population. The decline has been very rapid, with a drop of around one third (from 15% to 10% of the population) since 1990.
What this means, logically enough, is that there are steadily less and less people in this age group to fill places in the labour market. To this numerical decline we need to add theongoing secular decline in economic activity rates among this group, as more and more of Italy's - now scarce resource - young people delay entry and seek to improve their education, their human capital rating and hence their future earning capacity.
Thus the proportion of this group which is economically active has been declining steadily, as have the absolute numbers of those who are active, and the numbers of those who are actually employed. It is perhaps worth noting that the absolute size of this age group has been virtually stationary over the last 3 or 4 years (a statistical effect), but it is now set to fall steadily.
So if new employees will be hard to come by in this age group as we move forward, where can employment growth come from? Well basically there are two evident potential sources of labour, immigration and older workers. It is hard to envisage any large increase in employment in the 25 to 34 or the 35 to 54 age groups since - as can be seen from the chart below - activity rates among these groups are already fairly high, and even the slight fall-off which can be seen to have taken place recently in the 25 to 34 age group seems to be the result of a decline in female activity rates, and this is almost to be hoped for if Italy is to do one thing which is very important for its long term future, and that is have more children. Squeezing this particular lemon too hard at this point in time is only likely to obtain short term benefit in return for substantial negative long term outcomes.
Turning now to the principle sources of potential long run labour supply, in the first place it is obvious enough that there has been a significant surge in the size of the immigrant workforce in recent years (see chart below, and my other post for more details).
The other main potential source of additional labour in an ageing economy is the over 55 age group (and as we move forward of course increasingly it will become the over 65 one). Now many international agencies (the World Bank, the OECD, the IMF, the EU Commission etc) are pinning their hopes on the idea that the effects of population ageing may be to some extent offset by increasing the participation rates of these older workers, presenting impressive looking projections all the way out to 2050 to back their view that this is a workable solution. Yet since we have, in the here and now, a number of examples of societies who are trying quite hard to follow recommendations here, I do think it is important to examine in detail what is actually happening in these societies and try to really start to estimate the longer term macroeconomic consequences of this shift.
Now the important thing to bear in mind when we speak of older workers is that the important decision they need to take is about whether or not to continue working, and what is very clear in the Italian context is that workers in the 55 to 64 age group are increasingly taking the decision to stay at work, in some form or another.
Not only is the activity rate - which has, it must be said, been ridiculously low for this group, especially given Italy's very high life expectancy level - on the way up, the unemployment rate is on its way down, and the number of those employed is steadily rising.
More Work, Less Pay?
What is also significant about this trend is that it is also associated with a significant growth in part time and temporary work. The question really is who is doing this part-time/temporary work? In Japan it has become clear that many people now leave their "lifelong" job at 55, only to continue working in some way shape or form for another 15 years or so (both the Economist and the Financial Times have recently run articles about this trend in Japan - see here - although they fail to explicitly lock-it-in to the ageing population issue, which I think is where it belongs) . The work ethic in Japan is probably quite different from the one in Italy, but the similarities in the way the labour markets are evolving are really quite striking . In the German context it is also clear that the growth in part time and in non-social-security covered employment has been significant. And of course, in Germany, as I explain at considerable length here, the big increase in employment is in comparatively low skill, low wage work, which very often draws the over 55s into employment in much the same way and for much the same reasons as it does in Italy and Japan.
So what IS observable in the case of all 3 of these economies is that they are experiencing at one and the same time skill-shortages in some key areas of economic activity (due to the growing population crunch among the young - Japan for example is notoriously short of nurses) and generating large volume employment in more tenuous and lower skilled categories of work, since such work meets the skill and performance profile of the workforce they really have available. Thus, even as these labour markets tighten we find NO real evidence of significant wage-squeeze push.
From this point in we are left guessing until someone does some really systematic research, but it isn't a bad guess to suggest that the pressure on wages in the more skilled areas is being offset by a downward movement in wages in those less skilled areas where a mixture of lower skilled migrants, retirees and older workers are offering themselves for work in increasing numbers.
One other conjecture about Italy is that migrants are doing jobs in Italy which retired or semi-retired workers are doing in Germany and Japan, and hence we find that the participation rates in the 55 to 64 age group are still pretty low. At the moment I'm not quite sure what the macro economic consequences of this are going to be.
My feeling is that since people reaching 60 can now expect to live quite a long time, and since nowadays there is no great certainty attached to current levels of retirement benefit as we move forward, then older people, who are normally more prudent, will be protecting their current savings - in whatever form they may hold them - as best they can, and supplementing pensions with bits and pieces of work to maintain living standards so as to not run down their capital.
Another point here is that many retirees in Italy have a lot less in the way of accumulated wealth (and imagine the situation in a country like Hungary, which is the next one coming in this group as far as I can see, even though the median age is somewhat younger, but the male life expectancy is also much lower, and the population is already falling) in comparison with Germany and Japan.
This is why the recent deal Prodi struck with the Italian unions about postponing raising the retirement age was such a negative when viewed from where I am sitting.
So what I am suggesting is that the very weak internal consumption we are seeing in these three countries (and I would drop-in that Hungary is "coupling" here perfectly with the others, in terms of the model I am working on) is not ONLY associated with a higher propensity to save associated with older people, but also to do with the earnings profile associated with the new kinds of low level work older people are doing. In other words you can't just take the large number of new jobs being created and translate this into more consumption (as I think most of the conventional analysts are doing) since more things are happening here.
North-South Regional Stresses and Imbalances
But in any event the data we have is fascinating. The regional disequilibrium in Italy seem to be once more becoming really important (just like East-West one in Germany, and Tokyo vs the rest in Japan). While the national participation rate for the 55 to 64 age group went up from 28.9% in Q1 2004 to 33% in Q3 2007, in the mezzogiorno it has gone up from 31.8 to 35.3 over the samer period, so the South is keeping pace here, but if we look at the 65 plus group, while participation has gone from 3.4% to 4% nationally over the same period, in the mezzogiorno it has gone DOWN from 2.4 to 2.1%. The 15 to 64 participation rate also dropped from 54.1 to 52.5 over the period in the mezzogiorno while in the North it went up from 67.8 to 69.2 %. And this situation is reflected in the relative job creation performance between the North and the South.
Basically, given the very strong fiscal pressure which is about to come in Italy, and the danger IMHO of a sovereign default at some point if nothing is done to correct this very weak growth trajectory, Italy can be almost literally torn apart by this disequilibrium, especially given that it is reinforced by the unequal distribution of migrants. We have an ongoing polarisation of wealth, employment and people, and we really aren't giving sufficient consideration to the longer term political implications of the underlying economo-demographic process.
New Forms of Employment: Temporary and Part-Time Work
I have also found a limited breakdown for part time work by age. The two categories which the Italian statistics office use are "15 to 34" and "35 and over". Now strange as it may seem the number of part-time jobs for the 15 to 34 age group actually went DOWN between Q1 2004 and Q3 2007 - from 1.107 millions to 1.102 million - while among the over 35s it went up from 1.74 to 2.121 million. So Italy's new part-time workers are by-and-large not young, and it is a good bet that the majority of these new workers come from the over 55 group, and that it this kind of work which is responsible for the increase in the participation rates at the higher ages.
Of course, when we come to look at TEMPORARY work the pattern is rather different, there are an increasing number of young people (and since the number of such people is steadily declining, a rising proportion) working on temporary contracts. The number has gone up from 1.035 million in Q1 2004 to 1.368 million in Q3 2007. Over 35s (which we can pretty much imagine as over 55s, since the 35 to 55 age group is normally pretty robust in employment participation terms) goes up from 679,000 to 993,000.
By Way of a Conclusion
Basically the macro economics of all this are hard to assess. Italy's working age population - ex migration - has touched the ceiling, and without immigration it will go down and down. So everything depends on raising the productivity of those employed. But raising productivity today is pretty much synonymous with raising the human capital component and if in volume terms the numbers of older but less qualified people working - and working in more and more fragile and less and less well-paid occupations - swamps the number of new highly educated workers in highly productive jobs (we are talking about aggregates here) then the new value created by the society in question won't compensate for the contraction in the workforce. This is particularly true when it comes to raising participation rates in that oft quoted potential labour supply, female workers over 55. Many of the women in question are excellent wives and mothers, but given their often very low level of formal education, and given their lack of real experience of work out of the home, the economic worth in value added terms of their formal labour market participation may be much lower than many expect, and certainly this is where the evidence to date is leading us.
I also feel that the Italian experience is very similar and comparable with what we have been seeing in Japan and Germany, so it seems to me that there is now strong prima facie evidence that we need a big and really systematic research programme into the details of all of this, and rather less of that "gung-ho", we haven't got a problem approach, which has prevailed up to now, and which - at the end of the day - is based on the idea that raising participation rates will do the trick. As we are seeing, and unfortunately, it may well not do. It will do something, but that something may well not be enough.
The Economic Background to Italy's Political Crisis
Italy's economic and political outlook continues to deteriorate. That is the only way we can read the political turmoil which currently affects the country and the steady but relentless trickle of negative economic news which continues to arrive on our desks. In recent days we have had the November retail sales data, which showed that sales dropped 0.3% on a monthly basis in November, reversing 0.4% growth recorded in October.
Then there was the ISAE January consumer confidence index, which showed consumer confidence fell back to the lowest in more than two years in January as accelerating inflation and slowing economic growth fueled consumer pessimism.
Then again Italian industrial production fell for a third consecutive month in November.
With this kind of background it is hardly surprising that the Bank of Italy has slashed its forecast for 2008 gross domestic product, citing a worsening global outlook dominated by the US subprime crisis, weakening consumer demand and rising raw material costs. The Bank cut its 2008 growth projection for Italy to 1.0 per cent from a previous 1.7 per cent.
Jobs Boom?
The only area where the outlook is not rather bleak is the labour market, since jobs are being created, and lots of them:
while unemployment has been steadily - I could say relentlessly - dropping in Italy over the last two or three years:
She also has the highest proportion over over 65s:
and the youngest average exit age from the labour force - a combination which it is very hard to see the logic for.
So behind Prodi's sudden fall, a steady mountain of issues are busy accumulating. Back in July last year the Prodi government reach a very imprudent agreement with Italy's trade unions which effectively overturned an earlier Berlusconi era decsion to raise Italy's retirment rate from the current 57 to 60 with effect from 1st January 2007. The age will now be raised steadily and more slowly. But these low retirement ages are ridiculous when you look at Italian male life expectancy at nearly 77.5 - one of the highest in the EU.
According to Eurostat data Italy has consistently run a fiscal deficit since 1990 (when Eurostat records beign):
and the accumulated government debt has consistently been over 100% of GDP throughout the entire period.
This situation, not surprisingly has regularly attracted the attention of both the EU Commission and the Ratings Agencies. The EU Commission had the following to say on the Italian debt situation in their most recent economic forecast (November 2007):
How Long Can You Fudge the Agencies?
Now I appreciate that this deficit review procedure is fairly technical, but I think at least three things shoul be clear.
1/ That during the relatively good years of 2006 and 2007 no major structural reform has been implemented to address the underlying deficit issues, and a good deal of the burden in reducing the annual deficit has been carried by one off measures and higher than anticipated revenues due to the relatively strong recent economic growth.
2/ That the Prodi government was already in the process of loosening the budget adjustment process for 2008 - by accepting a deficit increasing draft budget - even before the impact of the downturn of finances was contemplated, which means of course that we can expect now the outcome to be worse than projected.
3/ That the need for the Prodi coalition to reach consensus with his "social partners" in govenment made the process of structural reform virtually impossible as can be seen from the size of the public sector wage agreement mentioned by the Commission and the about turn on retirement age, and it is this factor really that made the whole political process such an unstable one.
And meantime the ratings agencies are waiting in the wings. Standard & Poor's have already said that the current budget plan won't do anything to improve their rating outlook for Italian government debt (indeed they could have gone so far as to warn that it might deteriorate it), and they are already predicting that Italy may well fail to meet the agreed objective of bringing its debt below 100 percent of GDP by 2010. As and when this fear is confirmed it will be a case of watch this space, I would say, since if Italy proves incpable of resolving this situation now, what realistic hope will there be later?
Then there was the ISAE January consumer confidence index, which showed consumer confidence fell back to the lowest in more than two years in January as accelerating inflation and slowing economic growth fueled consumer pessimism.
Then again Italian industrial production fell for a third consecutive month in November.
With this kind of background it is hardly surprising that the Bank of Italy has slashed its forecast for 2008 gross domestic product, citing a worsening global outlook dominated by the US subprime crisis, weakening consumer demand and rising raw material costs. The Bank cut its 2008 growth projection for Italy to 1.0 per cent from a previous 1.7 per cent.
Jobs Boom?
The only area where the outlook is not rather bleak is the labour market, since jobs are being created, and lots of them:
while unemployment has been steadily - I could say relentlessly - dropping in Italy over the last two or three years:
Yet this is not producing the anticipated upturn in domestic demand, largely for reasons - as explained in this post here - which appear to be to do with the rapid ageing of Italy's workforce and population.
Basically the macroeconomic dynamics of what is happening in Japan at the moment are hard to assess, quite simply beacuse we have never really been here before, and there is not consensus on how to interpret what we are seeing. Italy's working age population - ex migration - has touched its ceiling, and without immigration it will now go steadily down and down. The share of the elderly population in Italy is rising and rising, placing a heavy strain on the social security and health system, yet Italy has a well nown long term growth problem, so the dynamics of how you pay for this additional strain are hard to see at this point.
Everything now depends on raising the productivity of those employed. But Italy's performance in this respect has hardly been stellar in recent years and raising productivity today is pretty much synonymous with raising the human capital component of value added. So if in volume terms the numbers of older but less qualified people working - and working in more and more fragile and less and less well-paid occupations - swamps the number of new highly educated workers in highly productive jobs (we are talking about aggregates here) then the new value created by the society in question won't compensate for the contraction in the workforce. This is particularly true when it comes to raising participation rates in that oft quoted potential labour supply, female workers over 55. Many of the women in question are excellent wives and mothers, but given their often very low level of formal education, and given their lack of real experience of work out of the home, the economic worth in value added terms of their formal labour market participation may be much lower than many expect, and certainly this is where the evidence to date is leading us.
Ageing and Export Dependency
I also feel that the Italian experience is very similar and comparable with what we have been seeing in Japan and Germany, but we have the one important little detail in the Italian case that far from being able to gain GDP growth from exports, Italy runs a goods and services trade deficit, so what should be a boon turns out in fact to be a drag on growth.
In fact if we look at a chart which shows both quarterly export growth and quarterly movements in the trade balance the fact that there is a high degree of interdependence becomes obvious. The point here is not to deduce a direct correlation, but rather to show how sensitive Italian GDP growth is to movements in net exports, and this is a by product of population ageing and its inability to depend on internal demand.
Italy's Public Debt
Of course in the forefront of what happens next is bound to be the issue of public finance, and the government debt. Only this weekend Dominique Strauss-Kahn, the new managing director of the International Monetary Fund, warned that the intensifying credit crunch is so severe that lower interest rates alone will not be enough “to get out of the turmoil we are in" in remarks which are being widely interpreted as advocating an increased use of fiscal policy. But this is precisely where Italy is "twice cursed" since she will feel the impact of the turmoil, but will be unable to make effective use of fiscal policy since she is already so much in debt.
Italy has the highest level of pension spending - as a % of GDP - of any of the original EU15 states.
She also has the highest proportion over over 65s:
and the youngest average exit age from the labour force - a combination which it is very hard to see the logic for.
So behind Prodi's sudden fall, a steady mountain of issues are busy accumulating. Back in July last year the Prodi government reach a very imprudent agreement with Italy's trade unions which effectively overturned an earlier Berlusconi era decsion to raise Italy's retirment rate from the current 57 to 60 with effect from 1st January 2007. The age will now be raised steadily and more slowly. But these low retirement ages are ridiculous when you look at Italian male life expectancy at nearly 77.5 - one of the highest in the EU.
According to Eurostat data Italy has consistently run a fiscal deficit since 1990 (when Eurostat records beign):
and the accumulated government debt has consistently been over 100% of GDP throughout the entire period.
This situation, not surprisingly has regularly attracted the attention of both the EU Commission and the Ratings Agencies. The EU Commission had the following to say on the Italian debt situation in their most recent economic forecast (November 2007):
In 2007, the general government deficit is forecast at 2.3% of GDP. The improvement with respect to the 4.4% of GDP deficit recorded in 2006 reflects buoyant revenue as well as the impact of one-offs, which turns from a negative 1.2% of GDP in 2006 into a positive 0.2% of GDP (taxes on the revaluation of companies' assets and proceeds from the sale of real estate.......The government confirmed the target of a deficit at 2.2% of GDP for 2008, with real GDP growth at 1.5%. Starting from a 1.8% of GDP baseline deficit projection based on unchanged legislation, the draft 2008 budget law adopted on 29 September has a deficit-increasing impact of 0.4 pp. The draft budget law foresees a reshuffling of expenditure as well as additional current expenditure and some tax cuts. The financing of the public sector wage agreement for the period 2006-2007 absorbs almost three quarters of the net additional expenditure.
How Long Can You Fudge the Agencies?
Now I appreciate that this deficit review procedure is fairly technical, but I think at least three things shoul be clear.
1/ That during the relatively good years of 2006 and 2007 no major structural reform has been implemented to address the underlying deficit issues, and a good deal of the burden in reducing the annual deficit has been carried by one off measures and higher than anticipated revenues due to the relatively strong recent economic growth.
2/ That the Prodi government was already in the process of loosening the budget adjustment process for 2008 - by accepting a deficit increasing draft budget - even before the impact of the downturn of finances was contemplated, which means of course that we can expect now the outcome to be worse than projected.
3/ That the need for the Prodi coalition to reach consensus with his "social partners" in govenment made the process of structural reform virtually impossible as can be seen from the size of the public sector wage agreement mentioned by the Commission and the about turn on retirement age, and it is this factor really that made the whole political process such an unstable one.
And meantime the ratings agencies are waiting in the wings. Standard & Poor's have already said that the current budget plan won't do anything to improve their rating outlook for Italian government debt (indeed they could have gone so far as to warn that it might deteriorate it), and they are already predicting that Italy may well fail to meet the agreed objective of bringing its debt below 100 percent of GDP by 2010. As and when this fear is confirmed it will be a case of watch this space, I would say, since if Italy proves incpable of resolving this situation now, what realistic hope will there be later?
Friday, January 25, 2008
One year later, Italy's Prodi falls
Guest Post by Manuel Alvarez-Rivera
Election Resources on the Internet
When the center-left coalition government of Italian Prime Minister Romano Prodi nearly collapsed early last year, I wrote here that "the events [...] may turn out to be the prelude of a greater crisis further down the road." Well, eleven months later that's exactly what has come to pass: after just twenty months in office, Prodi resigned on January 24, having narrowly lost a vote of confidence in the Italian Senate (by 161 votes against to 156 in favor).
In many ways, history repeats itself. As in 1998, a crucial ally on the fringes of the ruling coalition (the far-left Refounded Communists in 1998, the right-of-center UDEUR of Clemente Mastella in 2008) deserts the government, depriving it of a parliamentary majority (in the Chamber of Deputies in '98, in the Senate this time around). Prodi nonetheless soldiers on, hoping to turn things around, but ultimately comes up short by a narrow margin (by one vote in 1998, by five votes today). Finally, in both instances the definitive collapse of the government comes about a year after an earlier crisis had been successfully defused.
Although Prodi easily won a vote of confidence this Wednesday in the Chamber of Deputies, where the center-left holds a substantial majority (even after the departure of UDEUR), the Senate and the Chamber of Deputies are co-equal legislative bodies, and Italian governments must have majority support in both houses of Parliament in order to remain in office.
At the time of writing, it is expected that President Giorgio Napolitano will hold consultations on Friday, January 25 concerning the formation of a new government. Nonetheless, if it's not possible to form a new government capable of commanding a majority in both the Senate and the Chamber, early elections would have to be called, presumably for both houses.
Opinion polls currently have the center-right opposition parties ahead by a large margin, and to no one's surprise their most prominent leader, former Prime Minister Silvio Berlusconi is calling for early elections. However, President Napolitano appears to favor the formation of an interim, "institutional" government that would reform the proportional representation electoral law imposed by Berlusconi's government prior to the 2006 general election. Under the current system, parties with as little as two percent of the vote (and sometimes even less) can attain parliamentary representation, resulting in a highly fragmented legislature in which a very small party such as UDEUR - which actually polled only 1.4% of the vote in 2006 - can effectively hold the balance of power; Elections to the Italian Parliament has a comprehensive review of Italy's present and preceding electoral systems.
That said, it remains far from clear if such a government could be formed and who would preside it. Senate Speaker Franco Marini has been frequently mentioned as a possible candidate, and Prodi himself has not been ruled out. Just as important, while there may be a growing consensus that the current electoral system is not working in the country's best interest, so far there has been no agreement on an alternative. As such, it's quite possible that Italy will head to the polls later this year under the existing electoral system - with its well-known shortcomings - and that the government that emerges from that election may eventually find itself in a predicament similar to that of Prodi's outgoing cabinet.
Election Resources on the Internet
When the center-left coalition government of Italian Prime Minister Romano Prodi nearly collapsed early last year, I wrote here that "the events [...] may turn out to be the prelude of a greater crisis further down the road." Well, eleven months later that's exactly what has come to pass: after just twenty months in office, Prodi resigned on January 24, having narrowly lost a vote of confidence in the Italian Senate (by 161 votes against to 156 in favor).
In many ways, history repeats itself. As in 1998, a crucial ally on the fringes of the ruling coalition (the far-left Refounded Communists in 1998, the right-of-center UDEUR of Clemente Mastella in 2008) deserts the government, depriving it of a parliamentary majority (in the Chamber of Deputies in '98, in the Senate this time around). Prodi nonetheless soldiers on, hoping to turn things around, but ultimately comes up short by a narrow margin (by one vote in 1998, by five votes today). Finally, in both instances the definitive collapse of the government comes about a year after an earlier crisis had been successfully defused.
Although Prodi easily won a vote of confidence this Wednesday in the Chamber of Deputies, where the center-left holds a substantial majority (even after the departure of UDEUR), the Senate and the Chamber of Deputies are co-equal legislative bodies, and Italian governments must have majority support in both houses of Parliament in order to remain in office.
At the time of writing, it is expected that President Giorgio Napolitano will hold consultations on Friday, January 25 concerning the formation of a new government. Nonetheless, if it's not possible to form a new government capable of commanding a majority in both the Senate and the Chamber, early elections would have to be called, presumably for both houses.
Opinion polls currently have the center-right opposition parties ahead by a large margin, and to no one's surprise their most prominent leader, former Prime Minister Silvio Berlusconi is calling for early elections. However, President Napolitano appears to favor the formation of an interim, "institutional" government that would reform the proportional representation electoral law imposed by Berlusconi's government prior to the 2006 general election. Under the current system, parties with as little as two percent of the vote (and sometimes even less) can attain parliamentary representation, resulting in a highly fragmented legislature in which a very small party such as UDEUR - which actually polled only 1.4% of the vote in 2006 - can effectively hold the balance of power; Elections to the Italian Parliament has a comprehensive review of Italy's present and preceding electoral systems.
That said, it remains far from clear if such a government could be formed and who would preside it. Senate Speaker Franco Marini has been frequently mentioned as a possible candidate, and Prodi himself has not been ruled out. Just as important, while there may be a growing consensus that the current electoral system is not working in the country's best interest, so far there has been no agreement on an alternative. As such, it's quite possible that Italy will head to the polls later this year under the existing electoral system - with its well-known shortcomings - and that the government that emerges from that election may eventually find itself in a predicament similar to that of Prodi's outgoing cabinet.
German Consumer Confidence
German consumer confidence held near a two-year low in January as inflation and lack of real earnings leverage continued to reduce households' spending power. The GfK AG's forward looking index for February, based on a survey of about 2,000 people, was unchanged from January's reading of 4.5, the market- research company said in a statement today. The index was at 4.4 in December. The Nuremberg-based GfK were at pains to point out that they conducted this month's survey before world equity markets plunged on Jan. 21.
The sub-indicator measuring willingness to spend rose to minus 8.8 from minus 10.7 and households are more optimistic about the economic outlook, with a gauge rising to 28.7 from 23.6. But perhaps most importantly, the measure of consumers' income expectations fell to minus 4.7 from minus 1.7.
For income expectations to ``stabilize, it is essential that some calm returns to price developments,'' GfK said in its statement. German inflation accelerated last year to 2.3 percent, the fastest pace since harmonized euro-region records began in 1996, driven by a higher sales tax and rising energy prices, while consumer-price inflation slowed to 3.1 percent in December from 3.3 percent in November.
Meanwhile German business confidence unexpectedly rose slightly in January from a two-year low. The Munich-based Ifo research institute said its business- climate index, based on a survey of 7,000 executives, increased to 103.4 from 103 in December. Some newspapers seem to be making rather a lot out of this, but if you look at the chart the change is, as I say, a slight one, and compared to early 2007 we are still at very low levels. So I think it is more a case of putting a brave face on things.
The sub-indicator measuring willingness to spend rose to minus 8.8 from minus 10.7 and households are more optimistic about the economic outlook, with a gauge rising to 28.7 from 23.6. But perhaps most importantly, the measure of consumers' income expectations fell to minus 4.7 from minus 1.7.
For income expectations to ``stabilize, it is essential that some calm returns to price developments,'' GfK said in its statement. German inflation accelerated last year to 2.3 percent, the fastest pace since harmonized euro-region records began in 1996, driven by a higher sales tax and rising energy prices, while consumer-price inflation slowed to 3.1 percent in December from 3.3 percent in November.
Meanwhile German business confidence unexpectedly rose slightly in January from a two-year low. The Munich-based Ifo research institute said its business- climate index, based on a survey of 7,000 executives, increased to 103.4 from 103 in December. Some newspapers seem to be making rather a lot out of this, but if you look at the chart the change is, as I say, a slight one, and compared to early 2007 we are still at very low levels. So I think it is more a case of putting a brave face on things.
One year later, Italy's Prodi falls
Guest Post by Manuel Alvarez-Rivera
Election Resources on the Internet
When the center-left coalition government of Italian Prime Minister Romano Prodi nearly collapsed early last year, I wrote here that "the events [...] may turn out to be the prelude of a greater crisis further down the road." Well, eleven months later that's exactly what has come to pass: after just twenty months in office, Prodi resigned on January 24, having narrowly lost a vote of confidence in the Italian Senate (by 161 votes against to 156 in favor).
In many ways, history repeats itself. As in 1998, a crucial ally on the fringes of the ruling coalition (the far-left Refounded Communists in 1998, the right-of-center UDEUR of Clemente Mastella in 2008) deserts the government, depriving it of a parliamentary majority (in the Chamber of Deputies in '98, in the Senate this time around). Prodi nonetheless soldiers on, hoping to turn things around, but ultimately comes up short by a narrow margin (by one vote in 1998, by five votes today). Finally, in both instances the definitive collapse of the government comes about a year after an earlier crisis had been successfully defused.
Although Prodi easily won a vote of confidence this Wednesday in the Chamber of Deputies, where the center-left holds a substantial majority (even after the departure of UDEUR), the Senate and the Chamber of Deputies are co-equal legislative bodies, and Italian governments must have majority support in both houses of Parliament in order to remain in office.
At the time of writing, it is expected that President Giorgio Napolitano will hold consultations on Friday, January 25 concerning the formation of a new government. Nonetheless, if it's not possible to form a new government capable of commanding a majority in both the Senate and the Chamber, early elections would have to be called, presumably for both houses.
Opinion polls currently have the center-right opposition parties ahead by a large margin, and to no one's surprise their most prominent leader, former Prime Minister Silvio Berlusconi is calling for early elections. However, President Napolitano appears to favor the formation of an interim, "institutional" government that would reform the proportional representation electoral law imposed by Berlusconi's government prior to the 2006 general election. Under the current system, parties with as little as two percent of the vote (and sometimes even less) can attain parliamentary representation, resulting in a highly fragmented legislature in which a very small party such as UDEUR - which actually polled only 1.4% of the vote in 2006 - can effectively hold the balance of power; Elections to the Italian Parliament has a comprehensive review of Italy's present and preceding electoral systems.
That said, it remains far from clear if such a government could be formed and who would preside it. Senate Speaker Franco Marini has been frequently mentioned as a possible candidate, and Prodi himself has not been ruled out. Just as important, while there may be a growing consensus that the current electoral system is not working in the country's best interest, so far there has been no agreement on an alternative. As such, it's quite possible that Italy will head to the polls later this year under the existing electoral system - with its well-known shortcomings - and that the government that emerges from that election may eventually find itself in a predicament similar to that of Prodi's outgoing cabinet.
Election Resources on the Internet
When the center-left coalition government of Italian Prime Minister Romano Prodi nearly collapsed early last year, I wrote here that "the events [...] may turn out to be the prelude of a greater crisis further down the road." Well, eleven months later that's exactly what has come to pass: after just twenty months in office, Prodi resigned on January 24, having narrowly lost a vote of confidence in the Italian Senate (by 161 votes against to 156 in favor).
In many ways, history repeats itself. As in 1998, a crucial ally on the fringes of the ruling coalition (the far-left Refounded Communists in 1998, the right-of-center UDEUR of Clemente Mastella in 2008) deserts the government, depriving it of a parliamentary majority (in the Chamber of Deputies in '98, in the Senate this time around). Prodi nonetheless soldiers on, hoping to turn things around, but ultimately comes up short by a narrow margin (by one vote in 1998, by five votes today). Finally, in both instances the definitive collapse of the government comes about a year after an earlier crisis had been successfully defused.
Although Prodi easily won a vote of confidence this Wednesday in the Chamber of Deputies, where the center-left holds a substantial majority (even after the departure of UDEUR), the Senate and the Chamber of Deputies are co-equal legislative bodies, and Italian governments must have majority support in both houses of Parliament in order to remain in office.
At the time of writing, it is expected that President Giorgio Napolitano will hold consultations on Friday, January 25 concerning the formation of a new government. Nonetheless, if it's not possible to form a new government capable of commanding a majority in both the Senate and the Chamber, early elections would have to be called, presumably for both houses.
Opinion polls currently have the center-right opposition parties ahead by a large margin, and to no one's surprise their most prominent leader, former Prime Minister Silvio Berlusconi is calling for early elections. However, President Napolitano appears to favor the formation of an interim, "institutional" government that would reform the proportional representation electoral law imposed by Berlusconi's government prior to the 2006 general election. Under the current system, parties with as little as two percent of the vote (and sometimes even less) can attain parliamentary representation, resulting in a highly fragmented legislature in which a very small party such as UDEUR - which actually polled only 1.4% of the vote in 2006 - can effectively hold the balance of power; Elections to the Italian Parliament has a comprehensive review of Italy's present and preceding electoral systems.
That said, it remains far from clear if such a government could be formed and who would preside it. Senate Speaker Franco Marini has been frequently mentioned as a possible candidate, and Prodi himself has not been ruled out. Just as important, while there may be a growing consensus that the current electoral system is not working in the country's best interest, so far there has been no agreement on an alternative. As such, it's quite possible that Italy will head to the polls later this year under the existing electoral system - with its well-known shortcomings - and that the government that emerges from that election may eventually find itself in a predicament similar to that of Prodi's outgoing cabinet.
Thursday, January 24, 2008
Italy Consumer Confidence January 2008
Italian consumer confidence fell to the lowest in more than two years in January as accelerating inflation and slowing economic growth fueled consumer pessimism. The Rome-based Isae Institute's index, based on a survey of 2,000 families, fell to 102.2, the lowest since August 2005, from a revised 106.9 last month.
This is not good news, along with the simmering political crisis going on in the background. The following quote is pretty representative of views being expressed, and pretty much to the point I think:
This is not good news, along with the simmering political crisis going on in the background. The following quote is pretty representative of views being expressed, and pretty much to the point I think:
``It's a very strong decline that we definitely did not expect,'' said Chiara Corsa, an economist at UniCredit Markets & Investment Banking in Milan. ``It looks like global economic conditions along with factors linked to sentiment like the fall of stock markets had a decisive impact on confidence.''
Friday, January 18, 2008
Spain Unemployment December and Construction Output November 2007
Just a couple of fresh pieces of data, which simply confirm the general picture we have been getting. Firstly unemployment, which continues to rise. We now have the December data from INEM. The chart below gives a monthly comparison of 2006 and 2007. As can be seen, 2007 was a better year than 2006 until June, when the labour market turned, and since that time the unemployment tredn is decidedly up.
Looking now at the latest construction output data released by Eurostat this week, we can see that, despite some volatility the trend is definitely down on a year on year basis - dropping in November by 6.2% when compared with November 2006.
The month by month chart reveals a similar picture, since the months with positive growth have been followed by stronger downward movements. We should also bear in mind that actual construction follows new sales only with a lag, as what has previously been bought still needs to be built. Plus we should anticipate a strong increase in civil engineering activity as the government tries to some extent to offset the impact of the fall in private residential activity, and especially prior to March's elections.
Perhaps the clearest indication of the presence and extent of the economic slowdown is offered by the December data for the EU Commission Eurozone Economic Sentiment Index.
As reported earlier in the month the Commission’s economic sentiment indicator for the entire eurozone is now on a clear downward path. At 104.7 in December, down from 104.8 in November, the index was at its lowest since March 2006.
But perhaps more important than the steady downward drift in the general indicator are the individual country differences, and in particular the sudden movement in Spain and Ireland since the summer.
Looking now at the latest construction output data released by Eurostat this week, we can see that, despite some volatility the trend is definitely down on a year on year basis - dropping in November by 6.2% when compared with November 2006.
The month by month chart reveals a similar picture, since the months with positive growth have been followed by stronger downward movements. We should also bear in mind that actual construction follows new sales only with a lag, as what has previously been bought still needs to be built. Plus we should anticipate a strong increase in civil engineering activity as the government tries to some extent to offset the impact of the fall in private residential activity, and especially prior to March's elections.
Perhaps the clearest indication of the presence and extent of the economic slowdown is offered by the December data for the EU Commission Eurozone Economic Sentiment Index.
As reported earlier in the month the Commission’s economic sentiment indicator for the entire eurozone is now on a clear downward path. At 104.7 in December, down from 104.8 in November, the index was at its lowest since March 2006.
But perhaps more important than the steady downward drift in the general indicator are the individual country differences, and in particular the sudden movement in Spain and Ireland since the summer.
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