Starting in the fourth quarter of 2008, with the worsening of the crisis, the world economy has gone into the deepest recession in decades. Italy, in the midst of a delicate phase of structural transformation, was the only major euro-area economy to record a decline in GDP for 2008 as a whole. And economic activity continued to contract very sharply in the early part of 2009 as well.
The Tuscan economy too has fallen into recession. The data available for the first few months of 2009 suggest that the decline in output continued.
The first sector to feel the impact was industry. Orders and industrial production, already declining from the start of 2008, underwent a further marked contraction in the fourth quarter. The deterioration was quite general, hitting all the main sectors of production and firm size classes. The Bank of Italy's survey found that investment plans, already modest, were very broadly and sharply pruned in 2008, while investment plans for 2009 were also cut back. The crisis appears to have accentuated the tendency, under way for years now, towards diversification of outlet markets for the region's products.
Regional exports fell by nearly 5 per cent in nominal terms, while those of Italy as a whole held virtually unchanged. Because of Tuscany's very close trade relations with the countries where the crisis originated, the region felt the effects earlier than the rest of Italy, even though the composition of regional exports - less concentrated on goods for which tends to be procyclical, such as capital goods - helped to serve as a buffer.
The level of construction activity diminished. Private building activity was affected by the fall in demand for new houses and for renovations. Public works were less severely affected by the recession. New project tenders still increased slightly. A medium-term analysis reveals that real estate is the by far the largest component - about nine tenths - of Tuscan households' gross wealth. Its share has risen in part owing to rising house prices.
The world recession affected the service sector as well. The fall in consumption resulted in a contraction of retail sales in nominal terms, especially durable goods. Total tourist stays held basically stable, with a reduction in the foreign component and in the share accounted for by hotels. The volume of goods handled by seaports decreased significantly starting towards the end of 2008.
The first effect of the recession on the labour market was the jump in resort to wage supplementation, especially ordinary benefits, which increased nearly fivefold in the first quarter of 2009 compared with the year-earlier period. Overall, the number of persons employed increased in 2008. There was a slowdown in the fourth quarter and the number of job-seekers rose, driving up the unemployment rate. The presence of foreigners in Tuscany's labour market is substantial; most of them are payroll workers in the traditional sectors of the economy.
Credit, after expanding considerably faster than nominal GDP for a decade or more, slowed sharply in 2008. Taking securitizations into account, it grew by 4 per cent. The deceleration involved first lending to households, then that to firms.
This pattern of credit growth was determined by both demand and supply factors. The decline in demand on the part of households reflected the diminution in real estate sales and the contraction in purchases of consumer durables; on the part of firms, it reflected the fall in investment. Credit supply conditions were tightened. Banks, especially those belonging to the major banking groups, revised their credit standards.
The recession has begun to affect the quality of loans outstanding. New non-performing loans to firms appear to be increasing, those to households holding constant. The latter, however, show a significant increase in overdue instalments, which frequently translate into debt renegotiations.
An examination of the financial reports of Tuscan companies reveals that in the two years preceding the crisis their financial situation weakened. Specifically, there was a widening of the gap between the soundest firms and the most fragile ones - the latter more frequently small in size.
Between 1997 and 2007 bank-firm relations were affected by the significant changes to the regional economy, which relies more heavily than the national economy on bank finance. The share of lending provided by smaller banks not belonging to groups increased. Multiple borrowing diminished, and the role of firms' primary bank was strengthened.
The financial market turmoil heightened Tuscan savers' liquidity preference towards the end of 2008. There was a perceptible acceleration in the growth of current account deposits, thanks in part to their low opportunity costs.
