Economic activity contracted in all sectors in 2008. The effects of the global financial crisis on Umbria's economy were especially severe. The speed and intensity of the drop in the main indicators has no parallel in the recent past. The deterioration of the economic situation was accentuated in the first quarter of 2009.
Italian and foreign demand for industrial products, already weak in the first part of 2008, fell sharply starting in the autumn, with plunging sales for a large number of firms. The repercussions of the crisis were worst for the industrial pole of Terni, which is faced with the structural difficulties of the chemical industry and the sensitivity of metals and metal products to the overall economic cycle. In the province of Perugia the expansion of the engineering sector under way for three years thanks above all to sub-contracting for the motor vehicle industry came to a halt; and the weakness of the building materials industry was aggravated. Sales held up in the textiles and clothing industry, however, even though the contraction in output for the low end of the market continued, and in the food processing industry, especially mass consumption products.
Investment spending by the smaller industrial firms diminished, while their medium-sized and large counterparts sought to carry on with their investment plans for the year. Decreasing capacity utilization and the uncertain outlook resulted in a general downward revision of investment plans for 2009. To cope with the fall in sales, in the short term firms have tried to curb production costs, including staff downsizing.
Construction activity contracted again, owing to the stagnation of residential building and the further decrease in public works, reflecting the postponement of some major projects. House sales diminished and the rise in real estate prices slowed.
Trade and services were affected by the fall in consumer spending, which mainly involved durable goods. Small retailers continued to have the most severe difficulties, while retail chains resorted more often to special offers. Retailers' expectations for 2009 are negative, given the greater caution displayed by households in the first few months of the year, owing to fears for the employment situation. Tourist presences also declined in 2008, the Italian component in particular. Foreign tourist spending increased, but its share of regional GDP remains lower than the average for central Italy.
The effects of the crisis on the labour market began to be felt towards the end of the year. The number of hours of Wage Supplementation rose sharply in late 2008 and early 2009. The fall in the number of people employed in the fourth quarter ended a period of practically uninterrupted growth since the second half of the 1990s that had raised the employment rate to a historically high level.
Bank credit in Umbria grew more slowly last year than in 2007. Lending to firms slowed, most sharply for the larger banks. The deceleration affected all sectors but was most severe in manufacturing. The factors in the slowdown were slackening investment demand and greater caution on the part of banks, especially vis-à-vis small businesses. To meet the latter's heightened financing requirement, due in part to the increasingly late payments of customers, loan guarantee consortiums played a greater role, though their effectiveness was limited by excessive fragmentation and continuing organizational shortcomings. Lending to households continued to reflect declining demand for home mortgages.
Interest rates came down less than market yields. Towards the end of the year the quality of loans began to reflect the cyclical downturn. The fourth quarter was the worst in five years in terms of new bad debt, which increased especially among productive firms. There was faster growth also in sub-standard loans and in those more than 90 days past due.
Banks' fund-raising benefited from customers' growing liquidity preference and the banks' own decision not to lower yields. Customers' disinvestment in managed assets continued at a faster pace than in 2007.
