Wednesday, June 25, 2008

Italy Q1 2008 GDP Detailed Results (Updated)

Well I've finally found the time to look through the detailed ISTAT data on Q1 2008. In the first place GDP was up by a seasonally adjusted 0.5% on the last quarter of 2007, and by 0.3% on Q1 2007.

Imports were down 0.5% on the quarter, while exports were up 1.4% As a result the balance between imports and exports changed, and this is undoubtedly one of the main factors in the "bounce back" in the first quarter from the 0.4% contraction registered in Q4 2007.

Total consumption was up q-o-q 0.2% (all data seasonally adjusted), but it is the composition here that matters, since private household consumption was only up 0.1% (after falling 0.4% q-o-q in Q4 2007) while government consumption and transfers were up 0.4% (that's a 1.6% annual rate in an economy that is hardly growing). It is hard to see how this rate of increase in government consumption can be maintained and the deficit be reduced at one and the same time.

Gross Fixed Capital Formation was down q-o-q 0.2%, of which equipment was stationary, transport equipment was down 3.4% and construction was up 0.3%.

However year on year machinery and equipment (ie investment and renewal) was down 0.9% following an annual 2.5% drop in the previous quarter. That's why all those business confidence readings are so important, since in many ways the bottom has all but fallen out of Italian investment in machinery and equipment over the last nine months, and to get this item moving again we are going to need to see a revival in confidence, something which is unlikely to appear over any immediate horizon.

Italian business confidence dropped to its lowest level in almost three years in June as slowing economic growth, rising energy costs and a stronger euro all weighed on orders. The Isae Institute's business confidence index dropped to 87.1 from a revised 89.4 in May. That is the lowest reading since July 2005.

So basically the Italian economy got what little growth it had in Q1 2008 from a rise in government spending and transfers and an improvement in the international trading position (better exports and imports down). Maintaining the former is inconsistent with the objective of reducing the fiscal deficit, and the latter will be hard to sustain in we are now entering a collective Eurozone slowdown. Investment is unlikely to pick up substantially until the mood and outlook change and consumer consumption is not going to change greatly in coming months, in particular with rising unemployment, and increasing costs of food and energy. So basically be prepared for a number of quarters which look, at best, pretty much like the two we have just been through.


I'm preparing a piece for RGE Europe EconMonitor for Monday, and I'm making some charts, so I thought a couple of them might be useful to accompany this post.

Here's the long term GDP growth chart.

The big question facing structural macro economic theory is, I think, to explain why the long term private consumption chart for Italy looks the way it does. The 1993 collapse isn't the problem. The question is why does it appear to go in waves, which each wave cycle running at a lower level. This is what I would agrue to be the population ageing factor. You know, the one that virtually everyone else suggests doesn't exist. But if this isn't about population ageing and life cycle dynamics then I find it hard to understand why we should be seeing such similar phenomenon from this point of view in the leading "agers": Germany, Italy and Japan.

No comments: