The world economy has undergone a deep recession since the fourth quarter of 2008. The Italian economy, hit by the crisis in the middle of a phase of structural transformation, was the only large euro-area economy to record a decline in GDP in 2008 year on year. Economic activity continued to contract sharply in the first part of 2009. The abrupt fall in foreign trade and in orders in the final part of 2008 hit industry first, which reacted by reducing its demand for labour and postponing investment plans. Household consumption also began to decline, though more gradually, despite the abatement of inflation.
Developments in Italy's main geographical areas followed the general trends in recent months. In the Friuli Venezia Giulia region, the contraction in demand in industry involved both the foreign and the domestic components. The region's exports at current value continued to grow thanks to the shipbuilding sector and the positive performance of the steel industry.
Industrial production fell in line with the drop in sales. Investment diminished by 10 per cent in 2008, with a marked downward revision from the level of capital spending planned a year earlier; a further reduction is expected in 2009.
After three years of expansion, employment growth came to a halt in 2008 owing to the decline in jobs in industry and distribution. The unemployment rate, which in 2007 had fallen to its low for the decade, rose from 3.4 to 4.3 per cent. Recourse to the wage supplementation fund increased sharply both for ordinary benefits in connection with the industrial cycle and for extraordinary benefits in connection with corporate crises. The first quarter of 2009 saw a further surge in wage supplementation, which exceeded the level reached in all of 2008.
The cyclical downturn affected households' and firms' demand for credit; the decline in credit demand was accompanied by a more prudent lending stance on the part of the banks. The year-end stocks of loans to consumer households resident in the region were comparable to the year-earlier levels; the stagnation involved both mortgage loans and consumer credit. A growing portion of mortgage loans granted during the year consisted in renegotiations of earlier loans or contracts superseding loans taken out with different banks.
Firms' demand for credit was affected by the lower volume of activity in industry and the retrenchment of investment. On the supply side, banks tightened their lending standards, in particular by revising the spreads applied to riskier customers and raising the minimum rating required to obtain financing. Lending to limited liability companies accounted for the decline from 9.6 to 4.6 per cent in the annual growth in lending to firms; the growth in lending to sole proprietorships remained stable. Lending at short-term slowed significantly, while lending at medium and long-term accelerated, owing in part to debt consolidation and restructuring operations. According to provisional data, lending to firms continued to expand at an annual rate of close to 5 per cent in the first quarter of 2009.
Bank lending rates followed a similar pattern to the one at national level, starting to come down at the end of 2008. Following the repeated reductions in official rates, both short and longer-term lending rates fell significantly in the early part of 2009.
The quality of loans to firms, measured by the rate of new bad debts, began to worsen in the first quarter of 2009, with an increase in new bad debts in all the main productive sectors. The quality of loans to consumer households showed no signs of deteriorating and remained at high levels.
In the twelve months ended in September 2008 bank funding accelerated further in all the main technical forms. The rate of growth in funding from households rose to more than 10 per cent, thanks to customers' growing preference for products characterized by high liquidity and low volatility. This was accompanied by an increase in public and private bonds and a sharp decline in asset management products. The growth in resident households' bank deposits remained robust in the last part of 2008 and the first quarter of 2009.
