The international economy entered the deepest recession since the Second World War in the fourth quarter of 2008. The Italian economy, caught in a phase of deep structural transformation, was the only major European economy to record a year-on-year decline in output in 2008. Economic activity continued to contract rapidly in the first part of 2009.
In the Campania region, GDP at constant prices is estimated to have fallen by 2.8 per cent according to Svimez and by 1.6 per cent according to Prometeia, compared with the decrease of 1 per cent for Italy as a whole.
The downturn came on top of an economic cycle that was already highly negative for Campania. After outpacing the national average between 1997 and 2002, Campania's GDP growth rate was among the lowest of the Italian regions in the subsequent five years. Between 2002 and 2007 GDP per capita showed a cumulative contraction of 1 per cent, compared with growth of 2.3 per cent for the other regions of the South and Islands and of 0.9 per cent for the Centre and North. Over the same period the backward regions of some European countries marked by geographical dualism, such as Spain and Germany, grew at rapid rates at least matching the respective national averages.
The economy of Campania is facing the crisis from an initial situation of structural weakness that is especially acute in industry. During the current decade labour productivity in industry has remained more than 20 per cent lower than in the Centre and North and about 8 per cent lower than in the other regions of the South and Islands. The average size of production units, gauged by their workforce, is just over two thirds the already low national average. The presence of industrial districts or other types of local systems keyed to manufacturing is scant even by comparison with the rest of the South and Islands.
In the current decade the performance of employment has been even worse than that of GDP. According to Eurostat data for 2007, Campania ranked last among the regions of the European Union for the employment rate of the working-age population.
The low employment rate is accompanied by a high incidence of relative poverty among households, about twice the national average. The social distress of poor households in Campania is made more severe than that of poor households in other regions by a greater shortage of effective local public services able to attenuate the link between disposable income and material living conditions.
Sectoral developments and employment. - Output declined in nearly every productive sector in Campania in 2008. According to Prometeia estimates, value added increased only in agriculture, while it decreased by about 5 per cent in industry and construction and by almost 1 per cent in services.
Business turnover fell by 2.5 per cent at constant prices in 2008 and is expected to decline more sharply than that in 2009, according to a Bank of Italy survey of a sample of regional industrial firms with 20 or more workers. The effects of the crisis emerged with unusual speed and intensity. Qualitative indicators for industrial production, which as late as September 2008 were still in line with the average for the previous five years, fell to record low levels in the next two quarters. Exports, which had shown some slight growth up to the summer, slumped sharply beginning in the third quarter. The number of hours covered by the Wage Supplementation Fund in the first quarter of 2009 was five times greater than in the year-earlier period. For now, firms have reacted to the crisis primarily with defensive measures, curbing costs, trimming profit margins and cutting back production. Only a small proportion of companies are engaged in diversifying their products or markets.
The construction sector suffered from the large reduction in public investment and the sluggishness of residential building. The number of sales of residential property decreased for the third consecutive year, while house prices slowed but continued to outpace the national average.
The state of execution of public works varies considerably. Many of the projects under way involve complex interventions and large territories. Among the most important ones, also for the relative speediness of execution, are those connected with the special administration for the hydrogeological control and the reclamation of the Sarno river basin. Rapid progress is also being made by the project for the regional metropolitan rail system, which was begun at the start of the decade; to date, about 30 per cent of the main works have been completed and sites for more than 40 per cent of the remaining ones have been opened. Thirteen years since the start of work to modernize the Campania stretch of the Salerno-Reggio Calabria motorway, about two thirds of the kilometres involved have been completed. On the other hand, the environmental clean-up of the Bagnoli area has made slow headway, despite some signs of acceleration last year.
Private services were affected by the reduction in household consumption and by the fall in tourists' overnight stays. The smaller volume of commercial transactions led to a large drop in traffic through the region's ports.
On average for the year, the number of persons employed fell by 2.2 per cent (-0.7 per cent in 2007); the decline accelerated between the first and second quarters. The employment rate registered another significant decline, falling to 42.5 per cent, about 4 points below the average for the South and Islands and more than 16 points below the national average.
The credit market. - The growth in bank lending to firms slowed sharply in 2008, to 2.4 per cent, from 8.8 per cent in 2007, owing both to the lower propensity to take out loans for purposes of investment and to banks' more restrictive supply policies. The greater prudence in lending reflects an increase in the perceived risk of default deriving not only from the economic and financial crisis but also from the regional economy's loss of competitiveness in the last several years.
The decline in turnover and the lengthening of the time for settlement of trade credit sustained applications for short-term loans. A factor was the further lengthening of the time for collecting accounts receivable from general government. The percentage of credit drawn on short-term credit lines to firms reached a four-year high at the end of 2008.
More than 33 per cent of the sample of regional firms interviewed reported that overall borrowing conditions had begun to tighten in October 2008; about 10 per cent reported that banks had asked them to pay back some or all of their outstanding debt.
After narrowing for three years, the spread between the cost of short-term credit to firms in Campania and the national average widened in 2008 from 1.25 to 1.42 percentage points. The gap is partly due to the specific make-up of the region's firms by sector and size; it can also be due to certain characteristics of the local economy (including the greater incidence of the shadow economy and the slowness of court procedures) that generate a high degree of uncertainty concerning creditworthiness and the time needed to recover bad debts. The structural weakness of the regional system of loan guarantee consortia makes access to credit more difficult.
Lending to households also slowed, from growth of 15.3 per cent to 7.7 per cent. The slowdown involved both consumer and property loans. New medium and long-term loans for house purchases totaled €2.6 billion, about €600 million less than in 2007.
During the year loans characterized by repayment difficulty increased appreciably for both households and firms.
Public spending and public services. - General government primary expenditure in Campania, estimated as the sum of local government expenditure and central government expenditure for the territory of the region, averaged €9,200 per capita for the three years 2004-06, about 14.8 per cent below the average for the ordinary-statue regions. With capital expenditure per capita roughly similar, the gap was concentrated in current expenditure and, in particular, social benefits, which were about 29 per cent lower in Campania than the average for the ordinary-statute regions, owing mainly to the lower percentage of old people in the region's population. Nevertheless Campania benefits from a redistribution of public resources, since, as in the other regions of the South and Islands, public spending directly or indirectly allocated to the territory exceeds the region's tax-paying capacity.
Between 2005 and 2007 local government expenditure in Campania, excluding interest payments, rose by 4.6 per cent per year, compared with an average annual increase of 1.1 per cent for the ordinary-statute regions. Staff costs and other primary current expenditure grew faster than capital expenditure.
According to estimates based on provisional data, some of the main components of expenditure trended downwards in 2008. Health-care spending dipped by 0.1 per cent, compared with an average increase of 2.4 per cent in the ordinary-statute regions. The slowdown was due to the commitments made by the Campania Regional Government to curb health-care costs under the Health Deficit Adjustment Plan of March 2007. Investment is estimated to have decreased by 6.4 per cent, more than in the other ordinary-statute regions. Expenditure under the 2000-06 Regional Operational Plan for the use of Community funds also slowed last year.
At the end of 2008 local government debt in Campania stood at €12 billion, up from €11.6 billion at end-2007 and €10.1 billion at end-2006. In the three years its share of Italian local government debt increased from 9.2 to 11.2 per cent; its ratio to regional GDP rose by about 1.5 percentage points, to more than 12 per cent.
The reforms of public services at national and local level over the past fifteen years have made inadequate progress towards their goals, which include reducing the fragmentation of supply, enhanced efficiency, cost coverage from tariffs, and quality monitored through so-called service objectives. The profitability indicators of the firms that operate in local public services in Campania are among the lowest in Italy, owing in party to the high incidence of labour costs on value added. The perceived quality of services is systematically worse than in the other parts of the country. As in other sectors, in directly managed health services, and hospital services in particular, structural factors in Campania make costs higher and quality lower than in other regions.
Instances of excellence, even within the health-care sector, demonstrate that public functions can be performed effectively and efficiently in Campania with the available resources. Convergence towards these good practices is desirable in a situation in which it is necessary to curb the growth in public spending.
