Since the fourth quarter of 2008, with the worsening of the crisis the world economy has fallen into the deepest recession in decades. The Italian economy, caught in the middle of a deep, structural transformation, was the only major euro-area economy to record a decline in average annual GDP already in 2008. Economic activity continued to contract sharply in the first part of 2009. The drop in foreign trade and in orders between the end of 2008 and the early months of 2009 hit industry first, which reacted by reducing its demand for labour and deferring planned investments. Household consumption also fell.
The international financial crisis hit hard throughout the South and on Sicily, where economic activity had been slack even in the first half of 2008. The region's GDP is estimated by Svimez to have fallen slightly less than the average for the South and Islands. The impact of the crisis was heaviest on manufacturing, transport and distribution. The main indicators for industry, in particular, had turned worse towards the end of 2007. During 2008 orders and production accentuated their downtrend and the plant capacity utilization rate fell. The firms interviewed for the annual Bank of Italy survey reduced their investment significantly; the percentage of firms showing a profit for the year decreased.
Consumer confidence continued to deteriorate through much of the year, with repercussions on retail sales, which shrank in nominal as well as real terms. In the tourism sector, both arrivals and overnight stays declined, especially those of foreigners. According to the data of a Bank of Italy sample survey on international tourist flows, between 1997 and 2007 Sicily's average annual growth rates in the number of overnight stays and spending by tourists from abroad were among the highest in the South and Islands.
In construction, house prices slowed down; the number of sales fell more than in 2007. The total value of public works contracts put out to tender diminished.
Exports slowed sharply, and net of refined petroleum products they declined, most notably in the fourth quarter. The contraction mainly involved the euro-area markets.
Employment fell for the second consecutive year; the decline came from agriculture, industry excluding construction, and distribution. The number of job-seekers started to grow again and the unemployment rate, one of the highest in Italy, failed to come down for the first time in eight years. Between 1991 and 2008 the number of foreigners resident in Sicily increased significantly, though more slowly than the average for Italy owing to the greater difficulties of the local labour market. Immigrants are employed mainly in the more traditional sectors of the economy, such as agriculture, low-tech manufacturing and household services.
Lending, which had already begun to slow in 2007, slackened further in response to the cyclical downswing. Both supply and demand factors were involved. Banks tightened their loan approval standards; households reduced their demand for mortgage loans, while firms' financing requirement grew in connection with the increase in inventories and working capital, despite the fall in investment.
Short-term lending rates, especially on loans to firms, increased up to the end of 2008. Medium and long-term lending rates rose slightly overall but diminished for households. According to provisional data for the first quarter of 2009, lending rates came down considerably in the period in response to the reduction in official rates.
The decline in economic activity was also reflected in an increase in the ratio of new bad debts to outstanding loans; a substantial share of the new bad debts that emerged in 2008 refers to industrial firms.
Bank funding expanded at higher rates compared with the average for recent years, particularly in the form of bonds, which began to grow again after five years of net redemptions. The value of customers' securities held by banks remained unchanged, but with a shift in composition away from asset management products to securities held for custody and administration.
