The recovery that began in the summer of 2005 following a long period of stagnation gradually gained strength in 2006. The rate of economic growth in the region is now expected to be the highest since the beginning of the decade. Whereas in recent years there have been brief episodes of partial recovery, the present expansion shows signs of greater stability, partly thanks to manufacturing industry which has been undergoing a slow reorganization for several years. In the first quarter of 2007, the rate of growth slowed slightly.
Industrial production increased sharply under the stimulus of export demand. The surge came above all in the middle of the year, but continued during the early months of 2007. Expectations of a positive trend in demand and the increase in capacity utilization encouraged further capital accumulation, which according to business opinion should continue during the current year.
Exports performed particularly well in the most dynamic markets outside the euro area. Although the scenario for 2007, which is linked to forecasts of continuing strong growth in world trade, is a favourable one, it may be adversely affected by a further appreciation of the exchange rate.
In 2006 the service sector as a whole made a positive contribution to economic growth in the region. The expansion in output did not involve all branches to the same extent, however. While tourism developed steadily owing to the rise in overnight stays of Italian and foreign visitors, retail and wholesale trade increased at a more moderate pace. Business services benefited from the growth in banking services and transport. By contrast, production diminished further in agriculture owing to the poor performance of the livestock sector and of root crops. The growth of production in the construction industry was only moderate as the sector again suffered repercussions from the slowdown in investment in residential building and the standstill in public works.
The recovery in output levels led to employment growth in all sectors and especially in services. The participation rate increased as well, due to the contribution of non-EU workers. The labour market gained further in flexibility: the share of workers recruited into permanent jobs diminished, although at a slower rate than in the recent past.
The favourable economic situation was reflected in bank lending, which accelerated slightly in 2006. This can be attributed to the increase in medium and long-term credit to the productive sector, linked to the growth in investment, and above all to the acceleration in short-term lending to finance firms' liquidity requirements. By contrast, lending to consumer households slowed. The sharp upturn in consumer credit was in fact offset by a downturn in the rate of growth of mortgages for home purchase, partly in connection with securitizations. Following a trend under way since the 1990s, the growth in lending was more marked in the case of small-sized banks.
Households in the region continued to invest their savings predominantly in low-risk, low-yield instruments, such as government securities, bonds and bank accounts. Investment funds and portfolio management services continued to lose ground.
Local government budget policy action has been limited in recent years by structural factors. It should be seen within the national context of a drive to curb spending through the internal stability pact and to adjust the finances of the health agencies. Expenditure is extremely rigid in Veneto: current outlays that are more difficult to reduce, such as those on personnel, to finance health-care and to service the debt, account for more than 80 per cent of total spending. Other constraints on local budget policy include the poor performance of self-government revenues and, as far as the regional authorities are concerned, the unchanging amount of funds from the reform of the regional financing system under Legislative Decree 56/2000. Even in 2006 the health sector's deficit absorbed the additional resources tied to the regional tax measures.
Local government made a slightly larger contribution to the growth of the regional economy in 2006 through new investment, despite the persistent difficulties facing the various municipal authorities. Recourse to borrowing increased.
