Well, for the first time in six months we do have some real GDP data to look at, even if it doesn't make particularly attractive reading. If we start with the quater on quarter growth rates, we find that in Q4 2007 Italy's economy contracted by 0.4% vis-a-vis the Q3 2007 level, while Q1 2008 GDP was up by 0.4% on Q4 2007. Now the more astute among you might like to note that since the 0.4% contraction in Q4 was on a larger base than the 0.4% expansion in Q1, in fact the net result is that the Italian economy actually grew smaller in the six months between Q3 2007 and Q1 2008 -declining in chain-weighted contant prices from 321.83 billion euro to 321.77 billion euro. I don't know if anyone wants to call this overall contraction a "technical recession", but it certainly isn't evidence for an economy in good shape, and the sad part is that there is obviously worse to come.
Year on year the picture doesn't look that much better, since we find the Q4 2007 GDP was only up 0.1% over Q4 2006, while Q1 2008 was up 0.2% in comparison with Q1 2007.
Whichever way you look at it the Italian economy has been virtually stationary over the last 12 months, and it looks like this situation may be repeated in the coming 12months. Unfortunately the Italian statistics office didn't provide a breakdown of the GDP figure in the preliminary estimate for the first-quarter and Istat will release its final report on Q1 Italian GDP on June 10, so we still have to wait a bit to find out what was responsible for the bounce back. However, what we do know is that in the fourth quarter Italian consumer spending fell 0.2 percent over the previous quarter.
Both imports and exports contracted in Q4 2007 when compared with the previous quarter, imports by 1% and exports by 1.3%.
As a result of the deterioration in exports, the trade deficit also got slightly worse and this was obviously a factor in the negative growth performance registered in the quarter, from 1.165 billion euros in Q3 to 1.443 billion euro in Q4.
Also, if we come to think about productivity, we might like to remember that Italy was actually creating employment during 2007, and that employment was up year on year by 1.3% in Q4, while GDP was only up by 0.1%, so on a rule of thumb calculation basis you could come to the conclusion that labour productivity actually declined during the year. Certainly there is no reason to imagine there was any significant improvement, and this is very bad news indeed.
Italy's problem is not just one of this quarter or this year. As can be seen from the chart below it is very long term. The big question is now what happens to the fiscal deficit this year, and what the credit ratings agencies are going to have to say about the situation.