With the worsening of the economic and financial crisis, since the fourth quarter of last year the world economy has plunged into the deepest recession in decades. Italy, caught during a phase of far-reaching structural transformation, was the only large euro-area country whose GDP contracted in 2008. Economic activity continued to decline steeply in the first part of 2009. The crisis has not spared Emilia-Romagna, where its effects have been magnified by the region's openness to international trade and its specialization in the production of cyclically-sensitive capital goods. According to the main estimates available, regional GDP fell by 0.7 per cent in real terms in 2008, in line with the average decline for North-East Italy and slightly less than the national figure.
Orders and production fell in manufacturing, markedly for capital goods and the industries most closely linked to the real-estate cycle, while they held up in the food products sector. The progressive deterioration of the cyclical situation and the increase in uncertainty adversely affected the expectations of firms, causing them to revise down their investment plans. Qualitative indicators show a sharper contraction in production than during the 1992-93 recession. The construction sector saw activity decline in both residential building and public works. Uncertainty about future earnings and employment hurt household consumption; sales of durable goods and non-food products fell, while those of food products showed resilience. After significant growth in the previous two years, the flows of foreign tourists towards the region's coast diminished; those of Italian tourists slowed.
Exports decelerated from the end of 2007 and contracted in the last quarter of 2008, reflecting the direct impact of declining demand in the United States. Developments in the United Kingdom, the other country at the centre of the financial crisis but a less important market for the region's goods, had a smaller effect on exports. Exports to the euro area and other continental European countries held up better, while those to the Asian markets were virtually unaffected by the international recession. Despite the regional economy's high exposure to external shocks, the transmission of the effects of the financial crisis through the trade channel appear to have been generally limited in 2008.
The worsening in cyclical conditions induced firms of Emilia-Romagna to step up their recourse to the Wage Supplementation Fund and cut back on fixed-term employment; employment ceased to grow in the fourth quarter of the year.
Bank lending slowed gradually in 2008, in line with the trend of economic activity. The decline in investment worked to reduce firms' demand for credit; on the other hand, businesses demanded more credit in order to finance working capital and to make up for the fall in self-financing due to lower profitability. On the supply side, banks reacted to the deterioration in the economic situation by tightening their conditions for access to credit, especially for the construction industry, mainly through an increase in credit spreads. The slowdown in bank lending to firms was sharpest in the fourth quarter and in the manufacturing sector. Lending to households, which had been losing pace since the second half of 2006, slackened as regards mortgage loans and, less so, consumer credit; contributory factors were the fall in demand for durable goods, the decline in real-estate transactions and, on the supply side, banks' greater prudence. Reflecting the worsening economic situation, the risk on loan portfolios rose to decade-high levels (excluding the 2003-04 peak connected with the Parmalat group's failure). The deterioration was greatest for smaller firms and construction companies. Especially among consumer households, uncertainty about the outlook for the economy reinforced investors' preference for more liquid assets, to the detriment of asset management products.
In the first few months of 2009 the recession in manufacturing continued and regional businesses remained pessimistic about the short-term prospects. This would further dampen investment, which is expected to fall sharply on average for the year. Preliminary estimates indicate an accelerating decline in activity in the construction sector. Household consumption continued to stagnate, the fall in exports to the European Union steepened, and recourse to the Wage Supplementation Fund rose further. Firms' demand for labour is expected to remain weak; their demand for credit remained flat, against a moderate tightening of lending standards.
