In 2006 economic activity in Puglia accelerated sharply, marking the end of four years of virtual stagnation.
In industry excluding construction output growth resumed, having declined considerably in the previous three years. The results of the Bank of Italy’s survey of a sample of industrial firms with at least 20 employees indicate that turnover rose by around 5 per cent at constant prices. The upturn can be attributed to stronger demand, domestic in particular, for intermediate and capital goods, and to the increase in sales of traditional Italian products.
The recovery of the region’s industry took place at a time of structural transformation of the sector, which has resulted in a greatly reduced productive base compared with the beginning of the decade. The branches belonging to the “fashion system” have been extensively reorganized, with a winnowing of the least competitive firms. Some of the weaknesses that impeded development in the past are still present, however, such as the small size of most firms and the specialization in branches most vulnerable to competition from the recently industrialized countries. Part of industry has reacted to the pressure of competition by adopting new business strategies.
The majority of firms have made changes in their range of products and stepped up investment in their trademark as the main means of tackling competition and gaining some market power, while few have chosen to locate production abroad.
Towards the end of 2006 and in early months of 2007 the expansionary trend in demand and production in industry excluding construction gradually came to an end. The signs of a slowdown may be only temporary: business confidence picked up in the first quarter, and expectations regarding the short-term trend of orders and production returned to the high levels recorded in the summer of 2006.
Goods exports declined at current prices as a result of the fall in sales of metals and metal products, which had risen in the previous two years, offsetting the negative performance of the traditional sectors. The downturn continued through the early months of 2007.
The construction industry made a large positive contribution to growth, following the trend under way since the beginning of the decade. The results of the Bank of Italy’s survey of a sample of firms in the region show an increase of 5 per cent in the value of production at constant prices.
Agricultural output declined for the second year running. The decrease was accompanied by a drop in prices. Consumer expenditure accelerated slightly in response to the gradual improvement in the climate of confidence. There was a small increase in retail sales. Arrivals and overnight stays of tourists in the region continued to rise, with foreign visitors still representing the fastest growing component of tourism in the region.
The improvement in the economic situation was rapidly reflected in the labour market. Employment growth resumed, after declining for three consecutive years, particularly the female component, which reacts most rapidly to changes in the economic cycle. The presence of a high level of educational attainment among the workforce represents a basic factor for an increase in human capital and in the potential growth of the economy. The educational level of the population in Puglia is fairly low compared with the other areas of the country. Secondary education rates in the population are not as high as elsewhere, and students’ skills levels are modest. The gaps in university education rates are narrower. Partly thanks the reform of the education system, the number of young people going to university after secondary school has risen considerably since the beginning of the decade. However, about one third of undergraduates in Puglia study outside the region, and a large share of graduates find work in the area where they studied.
In 2006 the rate of increase in bank lending to residents accelerated to 14.4 per cent, again exceeding the national average. In the first quarter of this year, however, it slowed to 12.4 per cent. The rapid growth in lending was driven by the acceleration in credit to the corporate sector, which reflected the recovery in output. The favourable conditions of supply changed little with respect to the previous year. Unused margins on credit lines widened, while interest rates on short-term finance were virtually unchanged with respect to the previous year. In the first quarter of 2007 there was a slowdown in bank loans to the corporate sector, with the exception of those to building firms.
Lending to consumer households by banks and finance companies continued to expand rapidly. The flow of new mortgage loans for home purchase was €2.5 billion, up on 2005. The rate of growth in consumer credit accelerated further. With short-term market interest rates rising faster than medium and long-term rates, the majority of savers tended to prefer short-term liquid financial instruments, carrying low risk and a fixed yield at maturity.
