The economic and financial crisis worsened from the fourth quarter of 2008 onwards. For the year as a whole, Italy's GDP fell by 1 per cent. Economic activity continued to contract sharply in the first part of 2009.
In line with the national trend, output declined in Puglia 2008. The effects of the downswing emerged mostly in the second half of the year.
According to the Bank of Italy's survey, industrial activity fell by 4 per cent in real terms after stagnating in 2007; the decline was more pronounced for larger firms. The qualitative indicators of the trend in production and orders fell to low levels last seen in the recession of the early 1990s. Investment did not expand; it was held down by the steeper-than-average drop in sales in the fashion sector and the auto-industry supply chain.
The first few months of 2009 brought a further decline in orders and production. Firms consider the current crisis more serious than its immediate predecessors and have reacted to it mainly by cutting costs, especially for staff, reducing profit margins. The uncertain economic outlook has induced them to postpone planned investments.
After accelerating in the first three quarters, exports slumped in the fourth as world demand weakened. Exports of traditional industrial products, whose competitiveness has been declining for several years, trended downwards throughout 2008; the export performance of chemicals, mechanical equipment and machinery, and steel products worsened rapidly during the year.
Construction activity contracted significantly. The drop in residential building reflected the slowdown of the real estate market after years of rapid expansion. The prices of houses, which make up three quarters of all the real wealth of the region's households, rose in 2008 by 3 per cent, less than the national average. The decline in house sales is likely to cause prices to slow further in the near future.
Developments in the service sector were less unfavourable and also benefited from the stabilizing effect of the public sector. The tourist industry confirmed its positive trends of recent years. Retail sales fell in spite of a slight increase in those of large-sale distributors.
The demand for labour diminished in the second half of the year, ending an uptrend in employment that had lasted several years. The decline mainly involved self-employed workers and fixed-term employees, whose growth had been fastest in the previous three years. Recourse to the wage supplementation fund increased appreciably. The unemployment rate rose to 12.3 per cent in the fourth quarter.
Firms' main financial statement indicators had worsened even before the effects of the crisis were felt. Between 2003 and 2007 the profitability of Puglia's firms declined; against the background of a general increase in leverage, the share of financial debt attributable to vulnerable firms grew.
In 2008 lending to borrowers resident in Puglia grew at a rate of 8.3 per cent, well below that of the previous years though higher than in the rest of Italy. According to provisional data, the growth in lending weakened further in the first few months of 2009. The slowdown became pronounced from September onwards and mainly concerned lending to firms, especially those in the manufacturing and construction sectors. In contrast with the slack demand for loans to finance investments, there was an increase in loans for restructuring and debt consolidation operations. The portion of credit granted that was drawn and breaches of overdraft limits show an increase in financial strains. Banks reportedly adjusted the margins applied on interest rates, partly as a consequence of a tendency of borrowers' ratings to worsen.
In 2008 lending to smaller firms grew more slowly than lending to larger ones. The activity of loan guarantee consortia for small firms is affected by the fragmentation of the Puglia-based consortia. Their small scale raises the costs of the services they provide and works in favour of consortia based in other regions, which have an important presence in Puglia.
Lending to households expanded rapidly again, although slightly less than in recent years. The increase was driven by the demand for mortgage loans, which was boosted by the fall in interest rates from the closing part of 2008 onwards. In recent years the spread of innovative types of mortgage loans in Puglia has made it more possible for households to borrow.
The effects of the recession have yet to show up fully in the quality of credit: in 2008 the ratio of new bad debts to the stock of loans outstanding held at about 1.6 per cent, with a significant increase only for construction firms. A worsening in credit quality was seen in the first quarter of 2009.
