The Italian productive system is one of the most fragmented in Europe, with a variety of differences in management approach and, consequently, in performances.
Italy is also the country where more than 90% of enterprises are defined as micro and SMEs, mostly family-owned businesses with latent potential, due mainly to lack of structural support and cultural reasons.
Recent national and international events have pinpointed how territorial districts and sectors react, according to their features such as size, international exposure, digitisation, number of employees, cyclical or counter-cyclical intra-sectoral trend.
This is what emerges from the updated forecasts about regional GDP growth, recently published by Ufficio Studi CGIA based on the revised estimates on Italian local economies.
As well known, it is North-Eastern Italy the forerunner of the national economy. Veneto’s GDP is expected to grow by 3.4%, followed by Lombardy with 3.3% and Emilia Romagna with 3.2%. On the opposite positions are found Marche, Basilicata, and Calabria, with estimates respectively equal to 2.4%, 2.3% and 2.1% respectively.
With such regional GDP performance, it is plausible that Bank of Italy’ and ISTAT’s estimates about Italy GDP growth (3.2% and 3.4%) might be too optimistic, given as the actual gas supply constraints, and related energy price increase, will displace their impact during the second half of the year and depends on how the conflict in Ukraine unfolds.
% GDP growth estimates 2022 – Source: Ufficio Studi CGIA
Nonetheless, such estimates are pivotal to grasp the Italian context; it is, once again, clear as the structural differences among regions should be accounted for, considering the national government intervention (by far, the ended Draghi government have enacted decrees for a total equal to €52 billions, the last €17 billions included in Decreto Aiuti Bis) and the huge European program for the recovery of national economies through the NRRP.
As part of this Marshall-like program, Italy will devote up to 40% of the €191.5 billions to the South, for its modernisation and relaunch in both infrastructure and economic conditions. However, implementation plan for these funds and projects might not be so smoothed.
Some examples of the different pace of project realisations are found comparing Northern Italy projects with Southern Italy ones, the latter facing difficulties in material deliveries because of the current poor infrastructure and, to some extent, the political dysfunction that is permeating Italy nowadays, indistinctly.
Such tales abound throughout the South, whose sense of distance from the rest of the peninsula has proved hard to counter. One example is the failure to build a bridge over the Strait of Messina to link Sicily to the Italian mainland. The last attempt was abandoned in 2006 after years of feasibility studies and political arguments.
Hence, it is motivated the effort to concentrate money on the South, but it is essential as capital injections are accompanied by reforms to the justice system and to public administration. Indeed, Italy is perceived as a great entrepreneurial opportunity to foreign companies and investors, but the bureaucracy and legal system make harder to set their activities in the peninsula.
Additionally, Italy has a history of failing to use EU funds because of its lengthy authorisation processes. For instance, Sicily deployed less than a third of the €757 million in EU money that had been earmarked for the island under a separate regional development program, as revealed by the Corte dei Conti on the funds management of the Sicilian administration, and these will ultimately affect businesses and households.
Given this backdrop, it is rational to be sceptical, but it is also worth considering what could make this time different, as the implementation of the NRRP is carefully monitored by parliament commissions that seems focused on the achievement of targets and objectives rather than on simply fund spending.
If the next government will succeed in providing jobs and economic growth to some of Italy’s most troubled areas, it might create the foundation for the country to fully recover and create optimal conditions for the next generations.
The risk is that this new effort, once again, will fail to bridge the disparity between the wealthy northern and centre Italy and the less prosperous southern areas.
Italy’s economy grew 1.0% in the second quarter of the year from the previous three months thanks to buoyant construction activity, a stronger-than-expected performance despite the headwinds created by the war in Ukraine. In the short term, output growth is being supported by rising services activity following the lifting of almost all COVID-related restrictions and still robust production in construction. Real GDP growth in 2022 is projected at 2.9%, benefiting from a substantial carry-over effect from 2021 and an upward revision of GDP growth in Q1 2022.
However, the loss in households’ real purchasing power, waning business and consumer sentiment, persistent supply bottlenecks and rising funding costs overshadow the economic outlook. Thus, growth is expected to remain subdued over the forecast horizon. Output growth is estimated at only 0.9% in 2023, also given the projected weak momentum carried over from this year.
The risks to the growth outlook are tilted to the downside, in view of potential supply disruptions of natural gas, given Italy’s still sizeable dependency on deliveries from Russia despite recent diversification efforts.
It is encouraging to witness the recent GDP performance and tourism is supporting business services thank to a strong come back of foreign travellers.
The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises, many of them family-owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 17% of GDP.
A pivotal role can be played by local entrepreneurs and private investors in overcoming evident limitations in terms of execution of plans in the hands of public municipalities, but the real challenge is converting part of the underground economy and learn by to lead together with a clear programme and unity in executing plans.
In this respect, Italy will be the test bench to prove the practical efficacy of the European plan in levelling structural and cultural differences throughout its member states.
Sources: ISTAT, Ufficio Studi CGIA, Bloomberg
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