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Why Italy Matters
One of the Wealthiest European Countries with Great
Opportunities to Exploit
Gregorio De Felice
New York, May 5, 2011
Italy: below the EU’s average performance...
 Italy is lagging behind the rest of the Eurozone in terms of growth.
The cumulative gap since the start of the EMU is about 10% of GDP for 2000
(i.e. around 500 bn euro at 2000 prices).
GDP - Italy vs. Eurozone
(constant prices; base: 2000)
18
16
14
12
10
8
6
4
2
0
-2
Cumulative gap
Italy (% cum. change from 2000)
Eurozone (% cum. change from 2000)
2000
2001
2002
2003
2004
2005
2006
Source: Intesa Sanpaolo, based on Eurostat and ISTAT data
1
2007
2008
2009
2010
2011
... but with a good potential to exploit
1. Industrial leadership
2. Export market shares resilient to BRIC’s growth
3. Switching to a mid-tech specialization
4. Increasing the size of its SMEs
5. More and more FDIs
6. Labor market: not as rigid as is usually thought
7. Richness of households to foster businesses’ financial leverage
8. A sound financial sector as a partner
9. A medium-risk country
2
1. One of the most industrialized countries ...
Per capita industrial production
(current US$)
35500
30500
25500
20500
15500
10500
5500
500
Germany
Italy
Japan
USA
New EU
countries
Russia
Source: Centro Studi Confindustria on national sources and Global Insight
3
World
Brazil
China
India
... with many highly competitive regions ...
GDP
per capita(2)
Geographical
areas
Industrial
vocation (3)
Export propensity
index (4)
(Index numbers: Italy=100)
1
Top 9 Italian regions(1)
119
124
134
2
Germany
112
118
179
3
United Kingdom
110
80
85
37
4
France
103
66
93
5
Italy
100
100
100
(1) Emilia Romagna, Friuli Venezia Giulia, Lombardia, Marche, Piemonte - Valle d’Aosta, Toscana, Trentino Alto Adige, Veneto.
(2) GDP per capita in 2008 Purchasing Power Parity (PPP)
(3) Industrial value added (net of constructions) as a % of total value added in 2009
(4) Exports/GDP
Source: Eurostat, Istat
4
... and industrial clusters
Technological clusters
Traditional districts
Source: Intesa Sanpaolo, “Monitor dei distretti”
5
2. A significant trade balance surplus
Trade balance in industrial goods*
(2009, current billion US$)
400
300
200
100
0
-100
-200
-300
-400
China
Germany
Japan
Italy
Brazil
France
* Excluding fuels and lubricants; agricultural goods, food& beverages
Source: Intesa Sanpaolo on UNCTAD
6
India
United
Kingdom
USA
Market shares resilient notwithstanding the growth of
BRICs, just behind Germany
International market shares
-1.5%
UK
2009
-0.4%
Italy
2000
-1.2%
France
-2.8%
Japan
-3.5%
USA
Germany
+0.5%
0
5
10
* Source: Intesa Sanpaolo on ICE
7
15
Among world leaders in many products ...
Trade performance index by Unctad / Wto *
Rank
Country
No of first
positions
No of second
positions
No of third
positions
1
Germany
7
2
0
2
Italy
3
4
0
3
Netherlands
2
1
0
4
Sweden
1
0
3
5
Australia
1
0
0
6
China
0
3
0
7
France
0
1
3
8
Russia
0
1
0
9
Finland
0
1
0
Denmark
0
1
0
10
* Ranking out of 189 countries in 14 sectors
Composite Index made up of 5 indices: trade balance; per capita export; world market share; diversification of each macrosector; diversification of geographical markets.
8
... leveraging on quality
Trade performance Index by Unctad/Wto - Italy
Sector
Ranking
Textiles
Leather products
Clothing
Basic manufacturers
Non-electric machinery
Electric machinery and components
Miscellaneous manufacturing
Processed foods
Transport equipment
Chemicals
Wood products
IT& consumer electronics
Fresh foods
Minerals
1
1
1
2
2
2
2
6
18
20
23
24
29
52
* Ranking out of 189 countries in 14 sectors
Composite Index made up of 5 indices: trade balance; per capita export; world market
share; diversification of each macro-sector; diversification of geographical markets.
9
3. Switching to mid-tech specialization
The evolution of Italian manufacturing structure
(sales at constant prices)
High tech
Machinery & electrical equipment
Means of transport
Intermediate goods
Household system
Fashion system
Other consumption goods
4.3
6.5
6.0
6.2
25.7
25.3
28.1
30.5
6.9
6.9
7.8
23.4
23.9
3.7
4.7
7.4
24.2
23.1
5.1
4.3
17.7
14.5
12.1
11.1
18.8
19.3
17.6
18.9
1984
1994
Source: Intesa Sanpaolo – Prometeia
10
2004
2014
4. Increasing the size of its SMEs
Average number of employees
Growth rate of average size
2007
% var. 1999-07
Italy
4.0
Italy
France
5.8
France
Germany
Spain
UK
EU-15
Germany
13.3
Spain
5.3
11.1
6.4
Source,: Bank of Italy, Annual report, 2010
11
8%
-12%
25%
8%
UK
-6%
EU-15
-4%
5. More and more internationalized
Growth rate in production of Italian companies
(current prices, 2002-08)
abroad * *
domestic *
0
10
20
30
* GDP growth at current prices
** Sales of foreign subsidiaries (rate of growth)
Source: Reprint and Istat
12
40
50
60
70
6. Labor market: not as rigid as is usually thought
 Labor market rigidity in Italy is lower than in Germany, France and Spain,
mainly thanks to liberalization of temporary contracts.
“Doing business” sub-indices for some Euro area countries
Ireland
Italy
Netherlands
France
Spain
Germany
Rank
27
99
123
155
157
158
Difficulty of hiring (0-100)
11
33
17
67
78
33
Rigidity of hours index (0-100)
0
40
40
60
40
53
Difficulty of firing index (0-100)
20
40
70
30
30
40
Rigidity of employment index (0-100)
10
38
42
52
49
42
Firing cost (weeks of salary)
18
11
17
32
56
69
Higher values for the indices correspond to more labor market rigidity in the country considered
Source: Doing Business database, World Bank
13
7. Rich Italian households could improve businesses’
financial leverage
 The ratio of Italian households’ net wealth to disposable income is equal to
7.8, the highest among G7 countries. The financial liabilities of Italian
households represent a mere 78% of disposable income, the lowest among
the G7.
Household net wealth: an international comparison
(ratio of households’ assets to disposable income)
12.00
Real assets
Financial assets
Financial liabilities
7.68
10.00
8.00
6.00
5.44
6.98
6.17
7.52
7.84
4.46
4.00
2.00
0.00
-2.00
-4.00
USA
Canada
Germany
Japan
Note: Germany 2007. Source: OECD, Italy: Banca d’Italia, ISTAT
14
France
UK
Italy
8. A sound financial sector as a partner...
Cumulated central government support to the financial sector: % of 2010 GDP
1.3
Ireland (1)
30
8.4
Netherlands
14.4
0.1
Germany (2)
10.8
1.1
United Kingdom
7.1
1.8
United States
5.2
0.1
Greece
5.1
0.2
Belgium
0.9
Spain
4.3
Direct Support
2.9
Recovery
0.0
0.3
Italy (3)
0
5
10
% of GDP
15
20
25
30
35
Source: IMF, Fiscal Monitor – April 2011 and Intesa Sanpaolo. Note: (1) Direct support does not include asset purchases by the National Asset
Management Agency, as these are not financed directly through the general government but with government-guaranteed bonds. (2) Direct support
includes an estimated amount of €240 billion (9½ percent of GDP) for asset purchases. (3) Actual amount of special government bonds issued,
likely to be paid back in advance before 2013. A net direct profit for the government is widely expected.
15
...with a limited recourse to ECB open market operations
 The recourse to ECB open market operations as a stable source of funding
has remained very limited in Italy, compared to other banking systems.
Liabilities vs. the Eurosystem (% of total assets)
Eurozone
Spain
Portugal
Netherlands
Italy
Ireland
Greece
France
Germany
Belgium
Austria
-5%
1.4%
1.5%
7.3%
0.4%
1.1%
12.5%
17.5%
0.5%
0.9%
0.4%
0.7%
0%
5%
% total assets
10%
15%
20%
change since end 2009
Data for February 2011, except for France (January 2011). Data for Ireland include special loans from the Central Bank of Ireland
Source: Intesa Sanpaolo, from various sources (European Commission, ECB and NCBs), and IMF.
16
Basel III rules no disadvantage for Italian banks
Preliminary impact of Basel III on major European countries
Source: Moody’s
17
9. A medium-risk country
Spread over 10-year Bund
800
1400
700
1200
France
1000
Italy
800
Spain
600
Belgium
400
Portugal
200
Ireland
600
500
400
300
200
100
0
0
1/4
1/5 31/5 30/6 30/7 29/8 28/9 28/1027/1127/12 26/1 25/2 27/3
Source: Intesa Sanpaolo on Thomson Reuters-Datastream
18
Greece (rhs)
The drift in credit standing is linked to an excess of
foreign debt
 All countries in the euro area now experiencing rating downgrades and
fiscal problems have been running large current account deficits, leading to
a major worsening of their Net Financial Position vs. non-residents.
Changes in CDS spreads and Net Financial Positions
100
50
GER
FRA
0
Net Financial Positions
BEL
NET
ITA
AUS
-50
IRL
SPA
-100
GRE
POR
-150
0
100
200
300
Changes in CDS spreads, 2010 - 07
19
400
500
Reliance on foreign capital more important than total
leverage
 The strongest forward warning that a financial crisis was brewing came from
trends in the countries’ Net Financial Positions. The deficits of Ireland,
Greece, Spain and Portugal have more than doubled since 2000.
Total leverage and Net Financial Position (% of GDP)
80
low leverage,
external surplus
60
40
BE
DE
20
Net Financial Position/GDP
high leverage,
external surplus
NL
0
FI
-20
-40
SL
A
F
IT
SK
-60
-80
ES
EI
-100
low leverage, large
external deficit
-120
-140
100
150
200
250
GR
300
PT
350
high leverage,
large external deficit
400
450
Total Debt/GDP
NFP: Financial Liabilities - Financial Assets for the Rest of the World Sector, year 2009. Total Debt: sum of loans and non-share securities for
general government, households and non-financial companies. Source: Intesa Sanpaolo, based on Eurostat Financial Accounts and national sources
20
Age-related spending: outlook
Increase in age-related expenditure, 2010-2060, % of GDP
Germany
Spain
France
Italy
UK
EU-27
10.2
8.9
13.5
14.0
6.7
10.2
2.5
6.2
0.6
-0.4
2.5
2.3
2010
7.6
5.6
8.2
5.9
7.6
6.8
2060/2010
1.6
1.6
1.1
1.0
1.8
1.4
2010
1.0
0.7
1.5
1.7
0.8
1.3
2060/2010
1.4
0.7
0.7
1.2
0.5
1.1
4.6
4.8
5.8
4.3
4.0
4.9
-0.4
-0.2
-0.2
-0.2
0.0
-0.2
23.3
20.0
29.0
26.0
19.2
23.2
5.1
8.3
2.2
1.6
4.8
4.6
Pension spending
2010
2060/2010
Healthcare
Long-term care
Unemployment benefits & education
2010
2060/2010
Total
2010
2060/2010
Source: European Commission, Sustainability Report 2009
21