Global| Feb 16 2012Italy Gets Substantial Trade Adjustment In Gear
Summary
ItalyÆs 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. ItalyÆs domestic demand is very weak. GDP contracted [...]
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 | |||||||
Robert Brusca
AuthorMore in Author Profile »Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media. Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.
