The economy of Molise slowed down in 2007, interrupting the moderate expansion that had begun in 2006. Economic activity was affected by the weakness of domestic demand, which became more pronounced in the final months of the year. Exports registered low growth for the second successive year in the traditional sectors of clothing and food products. Industrial production was broadly at the average levels of the previous year; the growth in turnover was partly due to the rise in production costs, which were pushed up by sharply higher energy and food commodity prices. The construction sector continued to grow, although residential building weakened. Developments in distribution were unfavourable.
Alongside the cyclical weakness of activity, structural problems affected the competitiveness of the region's productive system. The latter's response to changing technological and market conditions has been fettered by the fragmentation and small scale of the region's firms and their consequent lag in innovation. In the last ten years labour productivity has grown less than the Italian and European average, reflecting delays in restructuring to achieve more efficient and competitive organization. In the past few years local firms, operating mainly in traditional sectors, have rarely modified their strategies.
Between 1991 and 2004 public expenditure on infrastructure in Molise was very substantial. However, production was affected by delays in realizing works and by the region's topography. According to the indicators computed by Istituto Tagliacarne, the region's infrastructure gap with respect to the European average remained basically unchanged. There is also room for improvement in the quality of public services.
The number of persons in work rose further, boosted by greater use of more flexible employment contracts; over half of all new employment contracts were for fixed-term jobs. A significant contribution to the gain in employment came from the female component, although the female employment rate is still considerably below the national average. The unemployment rate fell to the historically low level of 8.1 per cent.
Bank lending to firms continued to grow significantly; the expansion involved medium-sized and large companies only. By contrast, lending to households decelerated: the growth in loans for house purchases was affected by the slowdown of the housing market and the rise in interest rates. Credit risk on loans to firms worsened slightly.
Households continued to prefer liquidity in financial investment: the amounts held in current accounts and repos grew. The rise in rates fostered portfolio reallocation in favour of government securities.
Since the early 1990s the region's bank-centred financial system has undergone extensive changes. Local banks have diminished, the larger ones having been merged into intermediaries based in the Centre and North; in 2007 a new cooperative bank was established. During the same period, various indicators signal an improvement in the availability of credit in the region. Showing the beneficial effects of the entry of banks based in the Centre and North, since 1999 the amount of loans to regional customers has exceeded that of funds raised in the region. The growth in lending has kept pace with the national average, despite the greater riskiness of regional customers.
In the three years 2004-06 local government expenditure in Molise averaged 18.9 per cent of regional GDP, lower than the average for the southern regions, against an average of 12.8 per cent for all of the ordinary-statute regions. Local government's contribution to Molise's economic development continued to grow, in part reflecting reconstruction after the 2002 earthquake. Following significant expansion in 2006, local government debt grew at a more moderate rate in 2007, reaching €549 million at the end of the year.
