Italy is not a good place to make an investment in at this juncture in history. Although Italy is the third largest economy in the European Union after Germany and France it also has the highest debt level. Since 2010 Italy’s public debt has risen from 116% to 133% of its GDP (Gross Domestic Product). The problem for Italy is the shrinking economy. Since 2010 the Italian economy has declined 4% in real terms. Growth finally returned in the last quarter of 2013 but at the rate of just .01%.
Italy still has the 8th largest economy in the world. In Purchasing Power Parity (PPP) in GDP Italy ranks 11th in the world and 5th in Europe. The present prediction is that the Italian economy will grow 0.6% in 2014,1.15% in 2015 and 1.25% in 2016. Too much is predicated on the government of Italy continuing on a path of painful reform. Italian voters are frustrated with the slow economic recovery and lack of progress in making Italy a dynamic and profitable enterprise once again. Italy is ranked 73rd in the ease of doing business in the index created by the World Bank.
The GDP estimate of 2014 for Italy is $2,171,482 USD (United States Dollar). The GDP per capita will be $36,216.00 USD and $30,803 PPP for 2014. The GDP is based on 1.8% from agriculture, industry 24.9% and services 73.3% as of 2010 statistics.
The main industries of Italy are clothing, fashion, home appliances, motor vehicles, textiles, food processing, pharmaceuticals, chemicals, steel, machinery, communications and increasingly tourism.
Italy’s main export partners are Germany which takes 12.8% of the total. France comes in second with 11.3% followed by the United States with 6.6%. Next in line are Switzerland, the United Kingdom and Spain at 5.8%, 5.0% and 4.8% respectively. The 2013 estimate of the total value of exports stood at $483.3 billion USD. The year witnessed a 3.2% increase. As recently as 2009 Italy was still the 7th largest exporter in the world.
The main exports of Italy are textiles and clothing (of which Italy is famous for),engineering products, production machinery, motor vehicles, transport equipment, chemicals, food,beverages, tobacco, minerals, and nonferrous metals.
The major imports of Italy are also engineering products, energy products, textiles and clothing, food, beverages, tobacco, minerals, transport equipment and chemicals. The 2012 total value of imports stood at $469.7 billion USD. Italy has the advantage of a trade surplus at the present time. Mostly due to the slowdown in the domestic economy.
The major import partners for Italy are Germany, France, China, the Netherlands, Spain and Belgium. The 2012 estimates of the total are 15.7%,8.9%,7.0%,5.8%,4.8% and 4.1% respectively.
Ten year government bonds yields are now lower then they were four years ago, shortly before the Greek crisis. This is also the case in Spain and Portugal as well. This can be viewed as an encouraging sign, but it could also indicate the short memory of investors who seem willing to take a gamble on government debt once again. Foreign Direct Investment as of the beginning of 2013 had increased to $369.5 billion USD. Gross external debt at the same time had also increased to a total of $2.493 trillion USD. Foreign Reserves at present stand at $145.516 billion USD.
Unemployment in Germany is dropping further from already low rates and is now even declining in Spain, but in Italy it has risen sharply. It is now close to 12.7%. For young people it exceeds 40%.
As stated previously, public debt continues to rise. The budget deficit has been reduced from 5.5% to 3% of GDP and within the past year it has shown a substantial primary surplus but of course, that does not include interest payments on the existing debt. Revenues and expenses are roughly a trillion each. The difficulty that Italy has had managing it debt, has lowered the credit rating for the country, to BBB on average in recent years. The different credit rating firms give an outlook from stable to negative.
Italy comprises a total of 301,338 km2 (116,347 sq mi). It is the 72nd largest nation in the world. The population estimate for 2013 was estimated to be close to 60 million. That would make Italy the 23rd largest in the world.
Italy has a unitary parliamentary constitutional republic but its politics are very fractured which has made the longevity of any government short-lived and unstable. This makes reform of the economy more difficult not only in the initiation of a program, but in being around long enough to see it through. It does not help that Italians find “celebrities” appealing to serve in public office, who often do not have the skill,training or temperament for the jobs they hold.
Another problem if you are considering an investment in Italy is the issue of organized crime. These criminal organizations have infiltrated the economic and social life in many regions of Southern Italy.
It has been estimated that the Mafia may very well control 9% of the GDP of the country at large. A 2009 report identified 610 administrative districts known as comuni in Italy that had a strong Mafia presence. This is important because 13 million Italians live there and 14% of the country’s GDP is produced in these areas. There are areas in Sicily for example, where it is estimated that near 80% of the businesses are paying protection money to local crime families.
The huge chasm between the North and South in economic development and living standards is another challenge for the nation. Massive government infrastructure spending to date in the Mezzogiorno has not solved the problem. In fact, the resulting bureaucracy has often lead to a very inefficient allocation of resources and an antiquated business infrastructure, especially in the area of utilities. The North remains one of the industrial cores of Europe with an GDP 15% to 25% above the EU average. In the South the statistic is 30% below the EU average. The problems of the country at a national level are simply magnified in southern Italy.
Italy suffers from a number of structural weaknesses. The lack of raw materials and energy resources are just part of the problem, but worth noting. Over 80% of it’s energy needs must be imported. The Italian economy continues to be weakened by the lack of infrastructure development,market reforms and research investment. In the Index of Economic Freedom the country ranks 64 in the world and 29th in Europe. This is the lowest rating in the Eurozone.
In addition, the country is saddled with an inefficient state bureaucracy, low property rights protection, and high levels of corruption, heavy taxation, and massive public spending that accounts for half of the national GDP. More troubling is that research and development is below average for the Eurozone, which does not bode well for the future.
Although Italy has fewer global multinational corporations than other economies of comparable size, there are a large number of small and medium sized businesses that tend to cluster in different areas of the country. This forms the backbone of Italian industry in general.
To Italy’s strength this manufacturing sector is often focused on the export of a niche market and luxury products. It allows this sphere to remain competitive with China and other Asian emerging economies, whose advantage is lower wages. Italy continues to sell higher quality products quite successfully in the higher end markets and is one area of the economy that an investor could make money in.
In fashion for example, the cities of Rome, Milan and Florence are all world famous. Celebrated labels include Gucci,Prada,Versace, Valentino, Armani, Dolce & Gabbana, Missoni, Fendi, Moschino, Max Mara and Ferragami to name just a few. The fashion magazine Vogue Italia is considered by many to be the most important in the world.
Italy is also a world leader in architectural design, industrial design, and urban design.
The other benefit would be the huge internal market of the European Union for these products as well as the geographical proximity to North Africa and the Levant to the east. A total of 59% of its total trade is still with the European Union however.
Another bright spot of the Italian economy is tourism. This industry is one of the fastest growing and most profitable sectors of the national economy. In 2010 for example, 43.6 million international visitors arrived with total earnings made from them estimated to be $38.8 billion USD that same year. Italy is the 5th most visited country in the world and the highest tourism earner in the world. Italy has more UNESCO World Heritage Sites (49) than any other country in the world. It possesses a rich collection of art,architecture, culture and literature from many different historical periods. It also is world renowned for its famous cuisine. As a result this would be another area of the economy that a potential investor may consider.
One of the problems with Italy from an investing standpoint is the more recent government’s attempts to try to escape the commitments that the country made in relation to its massive and growing debt. The stagnation in economic growth cannot be solved by more public spending at this time. The already high rate of Italian debt levels cannot sustain a spending spree at this time, nor will the country’s European partners permit it .
The lack of economic progress, political instability and the slowness in pursuing programs of reform has led some analysts to refer to Italy as the “sick man of Europe”. So yes, one should visit and experience the many wonderful things to see and do in Italy. However, if one is interested in making an investment, except for the few sectors of the economy aforementioned that are doing well, I would advise against it.