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Economy in Brief

Italian Orders Erode Along With Governmental Prospects
by by Robert Brusca April 19, 2013

Industrial orders in Italy fell by 2.5% in February adding to a string of declines that extends back over four months. The declines over the recent two months are steeper than the declines over the previous two months.

Foreign orders have fallen in three of the last four months and are down by a sharp 2.6% in February alone. Domestic orders have fallen in three of the last four months and in five of the last six months. Both domestic and foreign demand show an extended period of weakness. Domestic demand is slightly weaker over the recent three-months and six-months and is substantially weaker over 12 months.

Over the quarter-to-date domestic orders are much weaker than foreign orders declining at a 20.3% annual rate compared 8.2% annual rate for foreign orders. Actual industrial sales in Italy continue to fall although the pace of the decline has let up slightly over three months compared to six months.

The domestic economy has been hit hard by the European financial crisis, by the recession, and by the ongoing austerity program in Italy. Domestic orders are only 77% of their pre-cycle peak while foreign orders have bounced back to about 88% of their pre-cycle peak. Industrial sales stand that nearly 89% of their pre-cycle peak.

The Italian economy continues under the pressure of recession and austerity. It also continues to be unable to form a government with recent efforts to bridge that gap having just failed again. I continue to view Italy is the biggest problem country in the Eurozone because its electorate has already rebelled against the leadership that has done everything it can to try to keep Italy on the path prescribed for it by the rest of the European Union.

The Italian electorate no longer wishes to be herded like cattle by its elected the elite. Instead, renegades and black sheep from the past are stepping up to try to undertake leadership roles. The formation of a technocrat government has completely backfired as Italians have come to view the austerity adopted by that government as pandering to an undesired program foisted on Italy from abroad. The leading Italian parties that permitted the technocrat government to be formed did so because they saw the steps to be taken as unavoidable but did not want to be held responsible. Those steps were the ones that Italy would have to take if it were to stay in good standing with the rest of the European Community. Italy no longer seems willing to be bound by that objective.

As a country that is relatively wealthy, but does have a difficult time getting its people to pay their income and property taxes, Italy does have the wherewithal to go it alone should it decide to do so. Italy is the danger economy for the Eurozone because it could decide to leave and still survive and even prosper.

Without a government, with politics in flux, anything could happen in Italy. The ongoing weakness in the economy is going to do nothing to bring Italy back into the fold. The aggressive talk from Germany especially the comments by the German wise-men saying that the Mediterranean countries can tax themselves to extract themselves from their situation will do nothing to appease Italy or cause Italians to want to stay in the Eurozone. Were Italy to follow the German wise-men prescription, it would still have an extreme competitiveness problem and Germany would continue to exploit its price competitiveness while trading with Italy. Italy, like other Mediterranean countries, has several layers of problems including high levels of debt and low levels of competitiveness. Europe still has not found a solution for competitiveness although leaving the union, re-launching an old currency, and depreciating it, is one way to solve the competitiveness problem.

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