The economic recovery that began towards the end of 2005 continued to gain strength during the year. According to the Prometeia research institute, Piedmont's GDP grew by 1.6 per cent at chain-linked prices, after declining by the same amount in the previous year according to data provided by ISTAT.
The resumption of growth was led by manufacturing, where the downward trend in value added of the previous five years reversed. The Chambers of Commerce estimate output growth of 3.1 per cent, due to the upturn in orders, mainly from abroad. The improved climate of confidence can be ascribed in part to the success of the Winter Olympics held in Turin in 2006, which had already had a strong expansionary effect on the region's economy in previous years.
After accelerating in the last quarter of 2006 industrial output slowed slightly in the early months of this year. However, according to the Bank of Italy's survey of industrial firms conducted in March and to business opinion surveys by the ISAE and the Union of Turin Industry, the economic situation is expected to remain positive during the next months. Despite the surge in export growth, mainly due to the large influx of orders from Germany, last year Piedmont's share of the world market continued to decline at current prices.
The turnaround in the cycle can be attributed in part to the sharp recovery in demand for Fiat cars, whose share of the domestic and European markets began once more to increase. Among the region's other sectors of specialization, apart from transport equipment, the greatest progress was recorded for metals and metal products and electrical and electronic goods. By contrast, there was little change in the performance of the textiles and clothing industries.
The growth of turnover in industry was combined with a recovery in unit profit margins, which had narrowed considerably during the recession. The expansion of industrial demand and production led to a rise in the capacity utilization rate, to just over 76 per cent in the last quarter of 2006, the highest level since September 2001. The improvement in the economic situation also led to increased capital formation in industry, after several years of slack results.
The contribution of the construction industry to economic growth in the region, which had peaked in 2003, continued to decline, mainly owing to the downturn in demand for public works. In 2006 there was a further decline in tenders for new projects as well as the closure of some large sites. According to available information, delays in work on the majority of ongoing infrastructural projects have sometimes been very considerable with respect to original forecasts.
Household expenditure on consumption continued to rise slowly but still faster than in 2005 (1.3 and 0.6 per cent respectively). The structure of Italy's distribution industry, which overall remains behind that of the leading European countries, in Piedmont is marked by one of the highest densities of medium and large-sized retail outlets in the country; according to the Antitrust Authority Piedmont is also one of the most liberal regions. A study conducted by the Bank of Italy has found that greater liberalization goes hand in hand with a more modern structure of distribution, greater labour productivity and moderate price increases, to the benefit of consumers.
Local public transport is a sector with considerable social and economic importance. During the first quarter of this year the Bank of Italy's branches carried out a survey among local authorities and service providers in the various regions to assess what progress had been made since the introduction, a decade ago, of the public service reform. The findings revealed that in terms of structure the sector is still a long way from achieving the objectives of the reform, particularly as far as introducing a competitive system is concerned. In Piedmont in particular, seven years after the entry into force of the relevant regional legislation, only one in eight of the main provincial towns has put the public transport service out to tender, while other services continue to be assigned to contractors directly or according to need. Not only has the implementation of the reform been limited, in Piedmont as well as throughout Italy, but compared with the leading European countries the service continues to attract few users and to offer poor satisfaction.
Employment continued to grow in 2006, mainly led by the service sector excluding wholesale and retail trade. The unemployment rate declined further, to 4 per cent, 0.7 percentage points less than in 2005. The participation rate for the working age population rose from 67.2 to 67.5 per cent.
In conjunction with the good performance of the real economy, there was an upturn in bank lending to the corporate sector to meet the greater demand for fixed and floating capital. Borrowing by households continued to expand, driven by mortgages for home purchases, despite the slight slowdown, and by consumer credit. The rise in interest rates prompted households to return to fixed rate mortgages, which doubled as a proportion of new loan disbursements compared with the previous year. The ratio of new bad debts to total loans, which had risen slightly in 2005, began to decline once more in the region, reflecting the favourable economic conditions. Savers in Piedmont resumed investing in low risk and low yield financial instruments.
