The macroeconomic situation deteriorated rapidly during 2007 and the pace of activity in Lombardy slackened. The qualitative indicators and the downturn in industrial production in the first quarter suggest that the weak cyclical phase will persist in 2008.
The region's economy suffers from long-standing structural problems that are reflected in a low rate of growth in output per worker. By European standards Lombardy lags behind in the level of spending on research and development, but the contribution of private-sector companies is greater than the Italian average. Relations with universities are an important source of innovation: these involved nearly a quarter of the region's industrial firms in the three years 2005-07, more than twice as many as in the three preceding years.
The quality of the school system in Lombardy, which ranks near the top in Italy, is not on a par with those in the main European countries. The proportion of high-school and university graduates in the population is also below the EU average.
Employment growth slowed in 2007, reflecting the weakening of economic activity, while the unemployment rate fell further. However, the labour market participation rate is lower than in many European regions, especially for the older age-groups and for women. Lombardy confirms its capacity to attract workers with university degrees and university students from the rest of Italy as well as workers from abroad (a quarter of all foreign immigrants in Italy live in the region).
The turbulence in the international financial markets had a modest impact on the growth in the main financial aggregates at regional level. Bank credit expanded strongly again, although its pace diminished steadily during the year. Lending conditions remained easy for most of the year; signs of a slight tightening began to be seen in the fourth quarter.
Private equity investment in firms located in Lombardy also grew, accounting for about one half of all such investment in Italy in 2007.
Lending to households continued to grow rapidly. However, new mortgage lending slowed as the property market cooled and interest rates rose; the deceleration grew sharper in the first quarter of 2008. Significant innovations in the characteristics of mortgage loans in the last five years have made an increase in the average loan amount possible.
The change in monetary conditions helped to prompt a shift of part of households' financial resources into more remunerative asset classes. Bank fund-raising from customers resident in the region slowed. There was a further outflow of savings from professional asset management products.
The process of bank concentration within the region continued in 2007. Banks' strengthened their commercial networks further by opening new branches and expanding Internet services. This entailed significant organizational action to establish structures better able to respond to customers' needs. The tendency towards more decentralized decision-making has been counterbalanced in part by the introduction of incentives for local managers and the increasing use of credit scoring.
