Since the fourth quarter of 2008, with the exacerbation of the crisis the world economy has fallen into the deepest recession in decades. The Italian economy, caught in the midst of a deep structural transformation, was the only major euro-area economy to register a decline in GDP for 2008 as a whole. Economic activity continued to contract rapidly in the early part of 2009. The sharp contraction of foreign trade and orders in the autumn of 2008 had an immediate impact on industry, which reacted by cutting the demand for labour and putting off investment. More gradually, household consumption also began to diminish, despite the subsidence of consumer price inflation.
As in the rest of Italy, in the autonomous provinces of Trento and Bolzano the effects of the international financial crisis intensified beginning in the fourth quarter and even more so in the first few months of the new year. The impact was mitigated, with respect to the other regions of the North, by the diversified structure of the local economy, its lesser dependence on exports, the relatively great importance of the public sector and the good performance of tourism.
The sectors worst hit by the crisis were manufacturing industry, which is more exposed to the fall in domestic and export demand, and construction, which after more than a decade of growth was already slackening. The region's industrial firms are responding to the decline in sales by cutting production costs and narrowing profit margins. Businesses expectations signal that the increase in investment recorded in 2008 will be followed by a significant contraction in 2009.
The service sector suffered less, but with considerable diversity between segments. Freight transport contracted sharply; households' consumption, especially purchases of durable goods, generally slowed; the tourist industry held broadly steady.
The labour market, characterized by low unemployment and high participation rates, saw growth in the number of persons in work in 2008. The positive trend was due largely to the female component. However, the situation is now worsening, especially in manufacturing and construction, with a sharp drop in the demand for labour and greater recourse of Wage Supplementation and the mobility lists.
Lending to residents slowed down in 2008 in both provinces, and preliminary data indicate that this trend continued in the first quarter of 2009. As regards firms, in the province of Trento the slowdown involved both large and small firms, especially in construction and services, most notably real estate services. In the province of Bolzano credit growth was sustained by an acceleration of lending to larger firms, especially in manufacturing, while lending to smaller businesses slowed perceptibly. Growth was particularly modest in the construction industry. Region-wide, the slowdown in lending to firms in the fourth quarter was due to the decline in the demand for finance to fixed investment and a moderate tightening of supply factors.
Loans to households increased slightly, held back above all by weak demand. New home mortgages decreased. Consumer credit slowed sharply in the province of Trento and contracted in the province of Bolzano.
As in the rest of Italy, bank interest rates began to decrease rapidly towards the end of 2008, in response to the lowering of the official reference rates.
Loan quality, as gauged by the new bad debt ratio, did not change significantly, but the rise in other anomalous assets signals a possible future worsening.
The allocation of residents' savings, typically directed to low-risk investment, became even more prudent. Households increased their bank deposits and holdings of bank bonds while reducing investment in shares, investment funds and portfolio management services.
