The global economic crisis has had severe effects on the economy of Piedmont, owing to its relevant exposure to the collapse of world trade and to the slump in demand for capital goods. The result was an exceptionally deep recession: according to Istat data, in 2008 the region's GDP fell by 1.5 per cent, more than the Italian average (-1.3 per cent ); in 2009 the estimated reduction ranged from a low of about 5.0 per cent (the national average) to a high of 5.9 per cent.
In manufacturing, industry demand fell steeply up to the summer. Afterwards orders revived somewhat, although still remaining historically low, owing to exports recovery and, at the beginning of 2010, to the gradual rebuilding of inventories. Production contracted for the second consecutive year, falling to about a quarter below the level recorded in 2000. The crisis hit hard all the specialization sectors of the region; only the food sector had a moderate decline, while in the motor vehicle industry the impact was buffered by the tax incentives introduced at the beginning of the year. Corporate profitability had turned downwards in 2008 especially for the most fragile firms and small companies; it fell further last year.
Within sector, performances varied considerably across firms. The Bank of Italy's surveys suggest that the companies that had restructured (adapting to the new competitive environment created by the integration of markets and the new technological paradigm) in the first part of this decade suffered less from the recession. Furthermore, their investments are expected to pick up in 2010 and their employment to show greater resilience. Firms more oriented towards innovation have better expectations for turnover in the current year.
In order to cope with the difficult situation, last year a significant proportion - higher than the national average - of Piedmontese firms modified their supply, upgrading the quality and expanding the range of their products, increased the number of export markets and the share of production made abroad.
The construction sector also remained in recession, owing partly to tight budgetary constraints on the demand for public works, to the further contraction in the housing market and to the downturn in new construction.
In services, distribution was hit by the reduction in household consumption, which was partly due to the deteriorating situation in the labour market; business services suffered from the drop in demand of industrial firms; goods transport fell as a consequence of the decline in industrial production. Positive signs came instead from tourism, thanks mainly to the expansion recorded in Turin province.
The forecasts for this year point to a moderate improvement of conditions in industry, driven mainly by foreign demand, even if production is expected to remain below the pre-recession levels. There is still a considerable degree of uncertainty, however, due to the persistent weakness of domestic demand and developments in the labour market.
The recession had significant effects on the region's labour market, especially in industry. Employment reduced after ten years of uninterrupted growth although the impact of the crisis was mitigated by unprecedented recourse to the Wage Supplementation Fund. The contraction in the labour demand mostly involved women, fixed-term employees and younger workers. The employment rate among foreigners fell more steeply than the regional average. The decline in labour demand was reflected in a large increase in the number of job-seekers and a significant rise in the unemployment rate, which returned to its 2002 level.
In 2009 the decline in production and the drastic downward revision of firms' investment plans led to a further marked weakening of firms' credit demand, which was accompanied by the persistence of extreme caution in lending by banks, notably the largest ones. As a result the growth rate in loans to firms showed a gradual reduction and turned negative in September. The contraction was concentrated in manufacturing industry and among firms with 20 or more workers.
As in 2008, the lending to the productive sector trends differed significantly by category of bank. We observed a considerable decline in loans by banks belonging to Italy's five largest banking groups and a further expansion by other banks, albeit less than in 2008. Moreover, according to our calculations, more heavily indebted, high risky and slow growing firms recorded worse-than-average growth in credit.
In the first half of 2010, according to banks' evaluations, firms' credit demand turned upwards and the tightening of lending standards stopped.
Credit to households has been growing at moderate rates since the second half of 2009, sustained mainly by mortgages, whose cost fell sharply in 2009 thanks to the drop of the market interest rates. On the contrary, consumer credit granted by banks continued to decelerate, owing partly to the weakness of household spending.
In 2009 interest rates on short-term loans came down by 2.5 points, to 5.3 per cent. The annual percentage rate of charge on new medium and long-term loans also diminished significantly.
Last year in Piedmont loan quality continued to worsen, because of the deterioration in firms' economic and financial situation. In the firms' sector the ratio of adjusted new bad debts to total loans outstanding at the end of the previous year increased to 2.5 per cent, the highest level since 2000; the increase involved all the main business sectors.
In 2009 Piedmont households expanded their investment in current account deposits and bank bonds. Compared with 2008, there was a change in households' portfolios towards debt securities (both bank and non-bank) and investment fund units from Italian government securities and equities.
