Italy, A Country Divided

Italy, A Country Divided

May 18, 2016 in Economics by Rob Power
Written For Incasso Partners

Italy – A Country Divided

It has been a while since there has been any positive news with regard to the Italian economy. This month, with the release of statistics for the first quarter of 2015, there is finally a glimmer of hope, a tiny green shoot in soil, the fertility of which was beginning to come into question. So after three years of almost continuous recession (having only briefly exited a previous one) Italian GDP grew by a modest 0.3%. This growth is small but given the difficult times that Italy has experienced, even lagging behind the rest of the Eurozone pre-crisis, it still may be cause for optimism. The truth is, however, if we assess Italy’s economy holistically, we can’t fail to see a massive disparity between the northern and southern regions of the nation.

A World of Difference

It is not uncommon for national statistics to gloss over regional inconsistencies but in the case of Italy, these differences are more substantial and it wouldn’t be a stretch to suggest that there are two very distinct economies in play. This divide has its roots in history; even as far back as the unification of Italy in 1861 when economic measures imposed on the south caused an untenable situation for agricultural businessmen, many of whom chose to emigrate in the ensuing decades. Later, when Mussolini was defeated, bringing an end to the fascist period, the allies chose, probably out of necessity, to hand the reigns back to the mafia families, most prevalent in the south. Many commentators point to this enduring widespread corruption as a factor that has been an obstacle to sustained economic development in the area. It is not difficult to understand investors’ reluctance when a 2007 study discovered that an estimated 80% of businesses paid protection money in the Sicilian cities of Catania and Palermo. Causes aside, when we examine modern statistics, the stark differences between the regions are plain to see.

The economy of Italy as a whole shrank by 0.2% in the period 2001 – 2013. If we look at this regionally we see a much different story, with the North growing by 2% and the South contracting by 7%. This is partially due to the South’s pre-crisis weaknesses, but for the most part; it is the far more catastrophic effects felt in the South post-crisis; which saw the region contract at almost twice the rate of their neighbours to the north. The resultant 13% contraction in the economy, when contrasted to the 7% contraction in the North, gives as clear a picture as any that the odds are stacked against the Mezzogiorno (the southern regions). Due to this disparity, the Italian economy is often both weaker and stronger that the general statistics would lead you to believe, depending on which region you focus on. The differences don’t end here unfortunately; when we examine the number of families living in poverty we see further evidence. In the period 2007 – 2013 the Northern region saw the poverty figure grow from 3.3% to 5.8%. Dismally, the latter figure, 5.8%, was the starting point down south, and it soared to a depressing 12.6% in the same period. The unemployment stats help to round out the picture. Out of the 943’000 Italians that became unemployed between 2007 and 2014; 70% of them were southerners. Of course this situation perpetuates and exacerbates itself through emigration; the young demographic of the Mezzogiorno having no option but to seek greener pastures. So can Italy progress as a whole in the coming years?

Can Italy Sustain Growth?

Italy’s Prime Minister, Matteo Renzi, recently visited the white house and used stereotypically flowery language to describe the trajectory of Italy’s economy saying Whether or not this is true remains to be seen. Like many of the Eurozone countries, Italy’s recent modest successes are likely to have been supported by external factors. Recent quantitative easing combined with low oil prices are undoubtedly contributory factors. Politically, at least, it seems as though the status quo is beneficial for growth. Renzi has implemented business friendly economic reforms which would point towards an improved climate for investment. There is slow but consistent progress against corruption with government initiatives gradually weakening the grip of organised crime. Political upheavals could have detrimental effects on the economy, however, both at home and abroad. Positively, there seems to be little challenge to the current administration in a time with consistency would be beneficial. Further afield, Italy’s fortunes are connected to Russia as a substantial trading partner. Recent sanctions relating to the Ukrainian issue are not doing them any favours. Greece is another sensitive point. Italy’s close ties with Greece mean that, if they did defect from the Euro, the effects would be felt right across the Apennine Peninsula.

Time to Invest in Italy?

There is no doubt that things are still uncertain in Italy. But with favourable economic legislation and a reduction in organised crime, the pastures are getting more fertile. Businesses are still struggling though and as a new player entering the market it would be prudent to ensure that you don’t let outstanding debts linger too long. With this in mind it is often wise to align yourself with a professional international debt collection agency who can use local experience to recover any debts you are owed anywhere in the country.

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