Although world trade in goods and services expanded rapidly in 2005, economic activity slowed further in Veneto as a consequence of the poor international competitiveness of its goods and the slackness of domestic demand. The economy was still affected in the first half of the year by the cyclical downturn in domestic demand and a level of price competitiveness detrimental to exports. In the summer, as the recovery in the euro area gained strength and the nominal exchange rate depreciated, the situation began to improve, also supporting household consumption and investment prospects. The favourable trend continued in the early months of 2006, with industrial output and exports making significant progress.
Overall, industrial production declined slightly in 2005 owing to the difficulties of the fashion and wood furniture industries. Exports also slipped, with a small increase only in metal products and machinery, particularly to the emerging Asian economies. In the second half of the year, the upturn in orders led to an increase in output and in capacity utilization. Investment, which contracted on average, showed signs of recovery in the closing months that were confirmed by budgets for 2006.
In 2005 the service sector provided the largest contribution to the economic growth of the region.
Retail and wholesale trade were still adversely affected by the stagnation of consumption, while the tourism industry saw a substantial rise in activity levels in all the main districts thanks to larger inflows of both Italian and foreign visitors. Financial and real estate services and some branches of the transport industry contributed to the expansion of business services.
By contrast, growth came to a halt in the primary sector and in the construction industry, the latter suffering the repercussions of the decline in output in non-residential building and public works.
The labour market reflected the economic slowdown in the region. While employment rose further in the first half of the year due to the statistical effects of the regularization of immigrant workers, in the second half it was virtually stationary. The slowdown was accompanied by an increase in flexibility: the share of workers on fixed-term or part-time contracts increased as did that of staff leasing (in practice, temporary work contracts). The number of fixed-term contracts transformed into permanent jobs diminished but was nonetheless still large.
Lending was fuelled by the expansion in residential building and further increase in property transactions. Households stepped up their demand for loans for home purchases and to finance consumption. Firms resorted to medium and long-term bank credit not only to finance property investments, but also to match the average maturity of their sources of funds and, towards the end of the year, to support investment in fixed capital.
The rate of growth in bank fund-raising diminished in response to the low level of bond yields. Although share prices picked up, households continued to put their savings predominantly in low-risk instruments. Investment in government securities and bank bonds declined; savings were placed mainly in very liquid assets, such as current accounts, or in structured financial instruments offering higher returns and guaranteed capital.
