The economy of the autonomous provinces of Trento and Bolzano suffered significantly from the international crisis, although the estimates released by Prometeia and Svimez indicate that the decline in output was smaller than at national level. Factors in this greater resilience were the size of the service sector, which was buoyed by the good tourist season, the diversified structure of the economy and the importance of local government's role. After the low touched in the first half of the year, feeble signs of recovery began to emerge from the third quarter onwards.
The effects of the crisis were particularly acute in manufacturing industry, which recorded a large decline in orders and production. Foreign demand contracted sharply, although it began to revive in the second half of the year. The fall in the capacity utilization rate and uncertainty about the timing and strength of the recovery braked investment plans. However, firms expect both investment and turnover to increase slightly in 2010.
In the construction sector, where the first signs of difficulty had emerged as early as 2007, the further fall brought activity back to the levels recorded in the very first years of the century.
Service activities, which accounts for some 70 per cent of the formation of value added in both provinces, held up well. Residents' disposable income remained above the national average; large-scale retailers were able to increase their sales, and the decline in purchases of durable goods was less than the national average. The tourism sector continued to grow, with positive effects on the entire economy, but the profit margins of businesses in the sector fell.
The recession's impact on the labour market was seen more in the number of hours worked than in employment, thanks in part to massive recourse to wage supplementation. Labour market participation, already higher than in the rest of Italy, rose further, but so did the unemployment rate, especially among younger workers and those with low levels of educational attainment.
Bank lending to customers resident in the two provinces continued to slow down in 2009. At the end of the year the growth rate was positive in Trento province and nil in Bolzano province, compared with a modest contraction at national level. Provisional data for the first quarter of 2010 show basically unchanged lending growth rates compared with December.
Lending to firms slowed sharply, reflecting the drop in loans to the construction industry and the marked deceleration in those to manufacturing and service businesses. The weakness of regional firms' demand for credit, resulting from a fall in investment and a modest increase in requests for debt restructuring, was accompanied in the second half of the year by supply policies on the part of local banks that were somewhat more restrictive in Bolzano province and broadly unchanged in Trento province. Banks expect the terms and conditions on loans to hold steady in the first half of 2010, set again a further decline in demand in Bolzano province and a stabilization in Trento province.
Lending to consumer households continued to grow in 2009, with a slight slowdown in Trento province and a pick-up in Bolzano province. Loans for house purchases grew over the year as a whole thanks to the growth in disbursements in the last quarter.
The quality of loans to firms in the region, gauged by the ratio of new bad debts during the year to the stock of loans at the beginning of the year, worsened with the recession. The quality of loans to households deteriorated in both provinces.
The historically low levels of interest rates reduced the opportunity cost of holding liquidity, thereby favouring banks' fund-raising, which was led by current accounts, the most liquid component. Among households' holdings of securities, bank bonds - the largest component - expanded somewhat; there was a considerable contraction in government securities and a slight increase in shares and investment fund units.
