Economic activity in Piedmont stagnated in 2005. Data provided by Svimez, Association for Industrial Development in Southern Italy, indicate that GDP declined by 0.1 per cent at constant prices, after rising by 1.1 per cent in the previous year according to Istat.
The difficulties of the industrial sector, which had emerged in 2001, continued for much of the year. However, in the autumn there were some signs of a progressive improvement in the climate of confidence among operators. Demand for goods produced by the region’s industries slackened even further in the early months of 2005 before picking up to a moderate level. Although world trade continued to grow at a rapid pace, the region’s exports slowed to 1.6 per cent, less than the national average. The consequence was a further loss of world market share at current prices, which fell by 9 per cent compared with 2004. Weak demand and de-stocking by firms led to a further decline in average output during the year. The capacity utilization rate was again below 75 per cent, adversely affecting investment by industrial firms. In the last quarter of 2005, industrial production resumed growth after declining for three consecutive quarters. The improvement was partly due to the upturn in demand for Italian cars which was fostered by the presentation of new models and gained strength in the first three months of 2006 on other European markets as well.
The results of the Bank of Italy’s survey of industrial firms conducted in the early months of 2006 confirmed the favourable evolution of expectations: according to more than half the firms interviewed the recovery had already begun or would do so within the first six months of the year, compared with just 30 per cent in the previous year.
An analysis of the balance sheets of more than 1,700 manufacturing firms in Piedmont by the Company Accounts Data Service revealed a sharp deterioration between 2001 and 2003 in the indices of operating profits and net profits to a lower average level than during the recessions of the 1990s. There was a substantial increase in the proportion of firms with negative profit margins and cash flow during the period. In 2004 turnover and value added began to increase once more, albeit slowly. Operating profits also picked up, but were still below the levels recorded prior to 2000. Medium-size firms performed better overall, with the indicators of profitability and margin on sales holding steady in the three years 2001-03 and a more marked recovery in turnover and value added in the following year. The downturn had a negligible impact on manufacturers of high-tech goods, which recorded only a small decline in value added in 2002 before overtaking the other branches in 2003.
In the construction industry output and investment continued to perform well under the impetus of work for the 2006 winter Olympics in Turin, the construction of some major infrastructures and the building and maintenance of dwellings. In 2000-04 the industry averaged annual growth of 4.2 per cent at constant prices, providing considerable support for the region’s economy, which would have recorded zero growth otherwise. Compared with the exceptionally good results of the previous two years, in 2005 signs emerged of a decline in the demand for public works and a slowing of output.
Moreover, according to available information, there are delays in work on a large number of ongoing projects. Firms and trade associations forecast that in 2006 the whole construction industry will experience a downturn in investment and output.
The property market continued to perform well in 2005 as favourable credit conditions persisted. Prices again rose, although at a slower pace than in the previous three years.
The improved economic situation was reflected in consumption, which picked up slightly in the second half of 2005. From 1995 to 2004, the annual growth in consumption of households in Piedmont averaged 1.8 per cent in real terms, slightly higher than the national average. The main contribution came from purchases of durable goods. Compared with the average Italian household, those in Piedmont spent more on cultural and leisure activities and transport and communications, less on food and beverages, clothing and footwear and hotels and restaurants.
Employment increased, mainly in services other than wholesale and retail trade. The effect of the regularization of undocumented foreign workers was again considerable.
Bank lending to residents in Piedmont grew by 4.2 per cent, less than in 2004. Conditions remained easy: interest rates continued to fall and the unused margin on firms’ credit lines widened. Slack credit demand on the part manufacturing firms owing to their limited borrowing requirements for working capital and investments led to a further decrease in lending to this branch. On the other hand, the strong performance of the construction industry caused a steady growth in credit to building firms. Lending to small firms was again more buoyant than that to large corporations. The former continued to restructure their bank debt in favour of longer-term loans, a trend that was particularly marked among medium-size and large firms in construction, hotels and transport. In manufacturing, short-term and medium and long-term credit declined.
Borrowing by households in Piedmont continued to increase at a rapid pace, although less so than in 2004. This reflected the further rise in mortgages for home purchase, which more than doubled in value compared with the beginning of the decade, and in consumer credit granted by banks and specialized non-bank intermediaries. As in 2004, the majority of new mortgages were indexed: at the end of December more than 80 per cent of the stock was at variable interest rates. The growth in mortgage loans was again largely due to the exceptionally low level of interest rates. The rise in demand was met with expansionary supply strategies, accompanied by a broadening of the range of products and wider presence of retail units.
The quality of credit in the region again deteriorated slightly in 2005, with the ratio of new bad debts to loans up by 0.2 percentage points to 1 per cent. In 2005 savers in Piedmont continued to increase the amount of liquid funds held in bank current accounts and repos. Investments in bonds of non-bank issuers and in individual portfolios managed by banks picked up and the stock of shares continued to rise.
