Economic activity in the region slackened in 2007, reflecting the weakening of domestic and foreign demand.
After significant growth in 2006, industrial activity was basically flat. On the basis of a Bank of Italy survey of a sample of 327 firms with at least 20 workers, turnover diminished by 0.8 per cent in real terms. Sectoral trends within industry differed: mechanical machinery registered good growth for the fourth successive year, while the other sectors registered a decline as a whole. Investment increased moderately. In the opening months of 2008 the trend of output showed signs of worsening. Business confidence returned to the levels of 2005, when the last expansionary phase was beginning to emerge.
Industry in Puglia continues to display structural problems connected with a model of specialization centred on the traditional sectors. Although labour productivity has improved in the last two years, it is still appreciably lower than in the Centre and North.
The profitability of Puglia's industrial firms has tended to diminish in the last ten years. The increase in the mechanical machinery industry has only partly offset the significant decline in the traditional sectors, which are specialized in low-value-added segments and more exposed to competition from the emerging countries.
Exports at current prices showed modest growth. A rise in exports of mechanical machinery was set against a fall in those of the traditional sectors. Exports of steel products stagnated owing to the slowdown in foreign demand.
In construction, production value rose slightly. With private building stagnant, activity was sustained by the public works sector, which benefited from the progress and completion of works contracted out in previous years. For 2008, construction firms forecast an increase in activity driven again by public works.
In the last ten years spending on economic infrastructure by the enlarged public sector in Puglia has been significantly lower than both the national average and the average for the southern regions. Puglia's infrastructure endowment gap has widened since the mid-1990s.
Retail sales slowed down despite further increases in large-scale distribution. Tourist flows into Puglia grew, boosted in particular by foreign visitors. Passenger traffic at the region's airports and seaports rose appreciably, while overall freight traffic diminished as a consequence of the fall in container traffic in the port of Taranto.
Employment grew by 2.2 per cent, less than in 2006 (2.8 per cent ) but more than national and southern average. The unemployment rate fell. The labour market participation rate remained at a level significantly below the national average, reflecting the lower participation rate of women.
Between 1995 and 2005 the negative differential between Puglia's per capita GDP and the European average widened as a result of the adverse trend in labour productivity and the employment rate.
Migration from Puglia to the regions of the Centre and North has been growing again since the middle of the 1990s. The human capital content of this outflow is high compared with the past and with the average for the southern regions, reflecting the propensity of university graduates resident in Puglia to move to the more developed parts of Italy.
In 2007 bank lending maintained a high rate of growth, though somewhat lower than in 2006. The slowdown was largely ascribable to lending to households, which began to be affected by the rise in both property prices and interest rates.
Lending to firms continued to grow apace, benefiting again from generally easy credit conditions. Interest rates continued to adjust gradually to money-market rates. The level of banks' credit risk was stable.
The first quarter of 2008 saw a further deceleration in bank lending; this largely reflected a slowdown in lending to households and involved firms to only a limited extent.
During the last ten years the financial structure of the region's industrial firms has improved as a whole. The fall in profitability and self-financing has been accompanied by a more marked drop in investment, reducing the borrowing requirement. In conjunction with a basically stable ratio of financial debt to equity, the increase in the share of medium and long-term bank loans has fostered a rebalancing of the maturity distribution of firms' financial liabilities.
The rise in short-term interest rates assisted the growth in repos, Treasury bills and government securities indexed to short-term rates in 2007. Bonds issued by Italian and foreign banks also expanded rapidly.
