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Economy in Brief

Italy Gets Substantial Trade Adjustment In Gear
by Robert Brusca  February 16, 2012

Italy’s current account and trade deficits were lifted into surplus in December as the slowdown hit domestic demand in Italy hard, contracting imports for the second month in a row.

Italy’s domestic demand is very weak. GDP contracted at a 2.9% annualized rate Q/Q in Q4 the second quarterly decline in a row. Italy’s Yr/Yr GDP growth is off by 0.5% compared to +0.8% for EMU as a whole. This goes part of the way to explain why Italian exports are so much stronger than Italian imports.

Exports are up by 2.8% in December after rising by 2.8% in November and those results follow an October fall of 3.1%. Meanwhile, imports are off by 5.8% in December after dropping by 1.9% in November and rising by 1.9% in October. Over the last 12-months exports are up by 5.8% and imports are lower by 5% with those growth differentials making some serious changes in Italy’s trade position.

Italy’s €4.2bln average deficit on current account over 12-months has shifted to a surplus of €616mln. While Italy remains one of the troubled EMU borrowers Italy is getting its trade account in order. Imports are falling over a broad range of products while exports are continuing to show some strength even with the problems in the growth-deprived Euro-Area. Italy’s exports are managing despite not being one of the competitive Euro-Area members.

While Italy has a huge amount of debt and its debt to GDP ratio is worrisome, it also has been an economy that managed to keep its primary budget deficit (deficit apart from debt-service) more or less in line. Now it has manhandled its trade position. Still, Italy faces challenges. As a political union, Italy is still split by a severe schism between the North and the South. Like Greece, Italy famously is unable to collect taxes and has a huge underground economy. Were Italy able to leash its underground economy it could get on top of its debt problems quickly. But history (and Greece’s experience) make it very clear how hard those habits are to change. One of the reasons Europe has such a high VAT is that its countries cannot collect taxes levied in other ways.

Even so Italy, while in recession has been corralling its trade deficit. It still faces huge growth challenges and it has a lot of repair work needed to get its fiscal side on solid ground. Its politicians, like those in Greece, are having a hard time engaging the social welfare reform that is required.

Italy's Trade Trends
  Mo/Mo % Monthly Rate Period Specified SAAR
Seasonally Adjusted Dec-11 Nov-11 Oct-11 3-MO 6-Mo 12-Mo Yr-Ago
Current Account Bal € 616 € (3,185) € (3,815) € (2,128) € (3,075) € (4,259) € (4,520)
Goods Balance € 1,833 € (949) € (2,429) € (515) € (944) € (1,514) € (1,741)
Exports 2.9% 2.8% -3.1% 10.6% 9.2% 5.8% 20.2%
Imports -5.8% -1.9% 1.9% -21.2% -6.4% -5.0% 31.7%
Services Balance € (375) € (464) € (318) € (386) € (397) € (539) € (738)
Exports 6.3% -7.7% 5.0% 12.4% 11.7% 4.5% 9.9%
Imports 4.5% -5.3% 2.5% 5.7% -5.1% -3.2% 15.8%
Not Seasonally Adjusted All Yr/Yr
Exports Dec-11 Dec-10 Dec-09 Dec-08
Food & Beverages 8.1% 16.7% 0.7% 15.8%
Capital Goods 7.0% 13.3% -4.0% -1.7%
Transport 3.5% 2.1% 25.8% -15.4%
Consumer Goods 6.1% 17.1% -6.7% 3.6%
Other Goods 3.5% 54.6% -16.2% -17.1%
Imports Dec-11 Dec-10 Dec-09 Dec-08
Food & Beverages 12.3% 21.0% 3.6% -3.1%
Capital Goods -3.9% 8.0% 0.4% -14.2%
Transport -5.7% -4.4% 16.5% -17.9%
Consumer Goods 5.4% 16.1% -2.7% 4.5%
Other Goods -23.1% 88.3% -20.9% -11.8%
Balances in Mlns of Euros
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