The moderate recovery of the Sicilian economy that got under way in 2006 continued into the first half of 2007 before coming to a halt as domestic demand weakened. The level of orders and production in manufacturing industry worsened steadily in the final months of the year; the deterioration continued in the early months of 2008. The firms contacted by the Bank of Italy for its customary annual survey reported a reduction in investment and slower growth in turnover than in 2006.
Consumer confidence eroded significantly from the summer onwards, adversely affecting retail sales. Distributors registered a decline in demand in the second half of the year, with repercussions on profits. In tourism, the number of overnight stays by Italian tourists decreased after three years of growth, while arrivals from abroad rose at a sharply slower pace.
Among the main productive sectors construction alone showed strength. Its performance was led by private building; the amount of public works contracts awarded and of those put out to tender diminished.
The overall growth rate of Sicilian exports rose, thanks to refined petroleum products. Export growth was about the same as in 2006 for other goods as a whole.
Employment fell, ending a three-year expansion. Agriculture and services other than distribution accounted for nearly all of the contraction. The decrease in the number of job-seekers led to a further decline in the unemployment rate, which nevertheless is still double the national average.
The weakening of economic activity and the rise in interest rates affected bank lending, whose growth rate fell for the first time in five years. The composition of Sicilian customers' bank debt continued to shift in favour of medium and long-term loans.
The slowdown in lending to firms involved all the main productive sectors, but it was less marked for construction, where activity levels remained high. The flow of new bank loans for investment in machinery and equipment diminished.
The slowdown in lending to households mainly involved consumer credit. The amount of new loans for house purchases was unchanged from the previous years. In concomitance with the narrowing of the spread between fixed-rate and variable-rate mortgages and the rise in the amount of instalments relative to borrowers' incomes, the share of mortgages bearing a fixed rate grew rapidly. The average repayment period lengthened.
New bad debts declined slightly in relation to outstanding loans. Confirming a trend that appeared in 2005, the volume of uncollectible loans assigned to specialized intermediaries rose. Approximately a quarter of the stock of bad loans on banks' books at the beginning of the year were assigned.
The overall rate of growth in bank funding was about the same as in 2006, with a slowdown as regards households and businesses and a considerable acceleration as regards general government. The value of securities held for safekeeping rose slightly. The fall in share prices prompted savers to shift some of their financial wealth from equities and investment fund units into more liquid assets and fixed-income instruments such as government securities and corporate bonds.
In recent years the activity of non-bank intermediaries has expanded swiftly in Sicily, both in the form of consumer credit supplied by financial companies and in that of collective loan guarantee consortia.
Starting with this edition the Report will pay more attention to the structural problems affecting the region's development. In particular, this year analysis focuses on the evolution of the Sicilian economy compared with the other economically backward regions of Europe and on some indicators of relative poverty in Sicily compared with the other Italian regions.
Per capita income in Sicily is among the lowest in Italy. The gap with the more advanced areas of the country has not narrowed perceptibly since the 1970s. Between 1995 and 2005 Sicily significantly underperformed the other backward regions of Europe. Lower productivity growth and the persistence of a low employment rate were partially responsible for these results.
Istat data based on the annual consumption survey show that Sicily is one of the Italian regions where the relative poverty rate is highest. Between 2002 and 2005 the share of households living below the poverty line rose by nearly 10 percentage points, far greater than increase for the southern regions as a whole. In 2006 more than one Sicilian household in four was living in poverty.
