A major earthquake struck the city of L'Aquila and the surrounding area on the night of 6 April 2009, causing widespread destruction and about 300 deaths. In the face of such an event, beyond cyclical economic developments, it is worth analyzing the effects of the earthquake and the outlook for the population and the places affected. A chapter of the Report on Abruzzo quantifies the damage to persons, buildings and productive activities.
To begin with the cyclical situation, in the fourth quarter of 2008, as the crisis worsened, the world economy entered the deepest recession in recent decades. Italy was the only major euro-area country to record a decline in average annual GDP already in 2008. Economic activity continued to contract sharply in the first half of 2009. The steep fall in foreign trade and in orders from last autumn onwards was felt first by industry, which reacted by cutting back its demand for labour and putting off planned investment. The chain of contracting and subcontracting, together with consumer caution, extended the effects of the crisis to services and the sectors oriented primarily to the domestic market.
The economy of the Abruzzo region followed the general trends. The signs of slowing that had emerged in Abruzzo as early as the start of last year grew more intense. Regional GDP appears to have declined less than the national average or the average for the South and Islands, but the contraction worsened rapidly in the second half of the year.
All of the region's productive sectors were affected by the crisis. The decline in industrial production became increasingly severe. Stagnation in the first half of 2008 gave way to a sharp reduction in industrial activity starting in October and November; in parallel, turnover and plant capacity utilization fell steeply. After a long expansion, the construction sector recorded stagnation in residential building, a drop in property sales and a decline in public works. Private-sector services were also affected by the crisis, but to a lesser extent and with considerable disparities. Retail trade suffered from the stagnation of household consumption; sales of certain non-durable, non-food products diminished far more rapidly than in previous recessions despite the fall in inflation. The volume of goods transport diminished. By contrast, tourism and agriculture enjoyed an expansion in 2008.
Exports slowed during 2008 and fell in the final part of the year, especially towards European Union countries. Provisional data for the first quarter of 2009 indicate a more pronounced contraction.
Following a long expansion, employment growth came to an abrupt halt in the fourth quarter of 2008. In line with the progression of the crisis, employment declined in industry and distribution, showing resilience in the other sectors. In the second half of 2008 the employment of workers hired on temporary or staff-leasing contracts decreased. The number of hours covered by the Wage Supplementation Fund in industry jumped to historically very high levels; in the first quarter of 2009 they were equivalent to almost 8 per cent of employment in the sector in Abruzzo, double the average ratio for the South and Islands and also higher than the figure in several regions of the North.
The Bank of Italy's traditional survey of industrial and non-financial service firms with at least 20 workers, conducted in March and April, examined the effects of the economic crisis. The survey was not affected by the earthquake, both because the sample firms located in the earthquake zone were interviewed before 6 April and because the firms in the rest of the region were asked questions referring to the preceding period. More than 60 per cent of the firms interviewed in Abruzzo indicated that the effects of the economic and financial crisis on them had been strongly negative; they judged the crisis to be more severe than earlier recessions. Turnover was down by around 14 per cent since the final part of 2008; industrial firms - particularly those producing mechanical machinery and in the transport equipment sector, regional industry's main specialization - were hit harder than service companies. Firms expected the crisis to last to the end of this year. Given low demand and ample spare capacity, planned investment for 2009 was cut back sharply.
Bank lending to borrowers resident in Abruzzo slowed further in 2008, especially are regards households and smaller firms. New mortgage loans to households for house purchases declined slightly; the share of indexed-rate contracts turned upwards.
The slowdown in lending to firms appears to depend on both demand-side conditions connected with the fall in investment, particularly for export-oriented companies and construction firms, and a tightening of lending standards by the banks, which became more cautious towards the riskiest firms. A substantial percentage of companies reported increased needs for liquidity, mainly for working capital. These difficulties are frequently aggravated by late payment on the part of both private customers and general government. Lending by smaller banks continued to expand strongly in 2008.
Recent years have brought signs of a rationalization of the relations between the region's productive sector and the banking system; the waning of multi-bank borrowing points to the creation of closer banking relationships especially for small and medium-sized firms. A significant role in the allocation of credit to small firms is played by the region's loan guarantee consortia, which are highly fragmented, however, and generally of limited size. Recent initiatives are aimed at consolidating and merging the consortia.
The quality of bank credit towards residents in Abruzzo showed signs of worsening in 2008. The ratio of new bad debts to the stock of loans remained broadly unchanged, while sub-standard loans and other anomalous positions grew rapidly.
On the funding side, the conditions of uncertainty in the financial markets caused a shift in households' financial portfolios towards less risky forms of investment.
