In 2005 Lombardy’s GDP decreased by 0.3 per cent according to the Prometeia think-tank. In the non-construction industry value added decreased, the upturn in orders that had begun in the previous summer led above all to a reduction in inventories, and the level of output held constant.
The steady growth in orders in the early months of 2006 was matched by a rapid increase in output, which rose by 3.6 per cent year-on-year in the first quarter. Investment spending declined in 2005, partly due to large margins of spare capacity. The construction industry continued to expand, although at a slower pace than in the previous two years. The main contribution to the increase in output came from the residential building sector, as public works slowed owing to contractors’ difficulties in obtaining finance. In the service sector, the growth in value added was modest. In the retail and wholesale trade sales were stationary, with only large retail outlets recording an increase. Orders and employment in business services continued to perform well.
Although exports grew by 6.6 per cent at current prices during the year, there was a further decrease in the region’s share of world trade.
From 1996 to 2003 the annual increase in the region’s value added averaged 1.4 per cent, less than the national average. The gap with the rest of the country was wider in the non-construction industry, particularly the medium and high tech branches in which the region specializes, and building. In the service sector value added grew slightly faster than in the country as a whole. In the same period, labour productivity in the region rose at an average annual rate of 0.5 per cent.
The slow pace of growth in industry was partly due to the shift in the productive structure towards smaller firms, in which the disparity in per employee value added is greater than in large corporations. In the service sector the gain in productivity was less than the national average, except in monetary and financial intermediation. Lombardy’s market share fell from 1.5 to 1.2 per cent of the total of the main OECD countries, in line with the national average. This was mainly due to the loss of competitiveness of exports, which was greater than that of total Italian exports; the effect of the system of productive specialization was negligible.
Activity in the field of innovation is more widespread in Lombardy than the average for Italy.
However, compared with the most innovative of the equally advanced European regions, the ratio of R&D expenditure to output is lower, particularly among private companies, and the region lag behind as to educational level of the working population and propensity to patent in all sectors of production.
Employment increased by 1 per cent in 2005, compared with 1.6 per cent in the previous year. The growth can be attributed in part to the progressive registration of illegal immigrant workers and the sharp rise in part-time jobs. The increase was nil in terms of total full-time equivalent workers. Compared with the national average, the highest participation rate (68.3 per cent) also reflects a greater presence of women in the labour market. By comparison with similarly advanced regions in Europe, Lombardy has a lower unemployment rate (4.1. per cent) owing to the smaller proportion of persons in employment, particularly women over 45.
Although signs of a recovery in the business cycle remained weak, in 2005 bank lending to resident customers in Lombardy increased by 7.9 per cent, at a faster pace than in the previous year. Supply conditions remained easy. Lending to the corporate sector increased by 9 per cent, mainly as a result of one-off operations to restructure large groups based in the region. Credit to finance productive investment was stationary. There was a growth in loans connected with the construction industry.
Loans to households rose by 16.7 per cent. The market for household finance, particularly mortgage loans but also consumer credit, has expanded steadily in recent years, although it continues to be smaller than in other countries. The ratio of lending to households to GDP is about half the average for the euro-area countries. In the case of mortgage loans, fiercer competition between lenders has led to significant changes in the range of products on offer, making it easier for households to access bank credit.
The quality of credit remained unchanged. New bad debts in 2005 represented 0.6 per cent of existing loans, a similar proportion to that recorded in the previous two years. The slowdown in economic activity has not led to an increase in corporate insolvency in recent years: composition proceedings were initiated in 2004 in respect of 0.9 per cent of firms in operation, an exceptionally low figure. By contrast, the number of firms voluntarily abandoning the market has increased steadily, particularly in traditional branches of activity, and amounted in 2004 to 3.5 per cent of those in operation.
Bank fund-raising in the region slowed. At the end of the year it was up only 3.1 per cent, mainly owing to the drop in placements of bond issues with customers in Lombardy in favour of increased recourse to the Euromarkets. Securitizations of current loans and bad debts for large amounts enabled banks to raise funds from sources other than customer accounts.
Households returned to various forms of professional asset management. Insurance products distributed through bank channels and investment funds attracted a particularly large volume of savings during the year. However, net subscriptions of investment funds were only positive in the case of foreign funds, while there were net redemptions of Italian ones.
At the end of 2005, 183 banks were based in the region (almost a quarter of the total in Italy) and 489 non-bank intermediaries. Various financial sector indicators testify to the broad supply of services per inhabitant and geographically. From 1999 to the end of 2004 – contrary to the trend in Italy and Europe as a whole and despite numerous mergers and incorporations – the number of banks in the region increased by 11. Foreign and specialized intermediaries entered the market.
Over one-third of the banks now located in Lombardy did not exist in 1999, at least in their present form. The market has become less concentrated, even though the mergers of recent years have involved some of the leading banks. From 1996 to 2003 the value added of the financial intermediation sector increased on average by 3.8 per cent per annum and labour productivity by 3.1 per cent. The stronger competition increased customer mobility, with the large banks losing market share to the small ones.
