After the marked contraction in global demand and world trade in the last months of 2008, the world recession, eased in the spring of 2009, owing to a boost from the expansionary economic policies adopted by the main industrial countries and the dynamism of emerging economies. Italy's GDP fell by 5.1 per cent in 2009. According to Svimez and Prometeia estimates, the decline in Puglia's GDP was of similar magnitude, between 5 and 6 per cent.
Economic activity and the labour market. - The economic and financial crisis affected all sectors, causing a significant fall in output and rippling through the labour market. The impact of the collapse in foreign demand starting in the fourth quarter of 2008 spread rapidly from exporting firms to the whole economy. According to the Bank of Italy's survey, the sales revenues of manufacturing firms fell by 13 per cent in real terms in the region last year, following a smaller decline in 2008. The fall in turnover affected nearly two thirds of the firms in all the main branches of industry and was heavier than in the rest of Southern Italy. Qualitative indicators suggest that industrial activity staged a partial recovery in the summer of 2009. In the first few months of 2010 production appears to have stabilized at around the year-end levels.
Industrial investment contracted by more than a third, as a consequence of the drop in demand and the large spare capacity, which soared to decade-highs. Firms' weaker self-financing capability further hindered investment.
The nominal value of exports diminished by more than a fifth, in line with the national average. The procyclical machinery and steel sectors recorded steeper declines. The crisis hit the fashion and furniture industries in the midst of a challenging strategic turnaround in response to the growing competition of low-wage countries. By contrast, moderate export gains mitigated the decline of production in the food industry.
Business confidence started to recover at the beginning of 2010. Firms report positive expectations for production levels and appear to have stopped reducing inventories. However, some 40 per cent of firms forecast that the recovery will not be fast and do not expect turnover to return to the pre-crisis level until 2012. The outlook does not appear to be more favourable at firms that had undertaken restructuring programs before the recession.
The value of production in the building sector contracted by 2 per cent in real terms last year. The slump kept on affecting residential building as a result of the weakness of the property market, despite an appreciable increase in renovation work. By contrast, the public works sector grew.
Retail sales declined further, owing to the fall in sales at small outlets, which was not completely offset by the increase at large retailers. Transportation of goods contracted considerably, while passenger transportation expanded. Tourist flows continued to grow, albeit at a slower pace than in 2008. Spending by foreign tourists in Puglia also grew again, against the background of a declining national trend.
The recession's effects on the labour market were substantial. Employment fell by 3.8 per cent, more than in Southern Italy and than the national average, returning to the level recorded in 2005. The sharpest losses were among the self-employed, younger workers and university graduates. The unemployment rate rose by one percentage point, to 12.6 per cent. Recourse to the Wage Supplementation Fund nearly tripled, as did the number of discouraged workers who gave up undertaking job-search actions.
Credit. - Bank lending grew by 3.7 per cent in Puglia, more than in the rest of Italy; after declining rapidly in the first half of 2009, the growth rate stabilized in the second. Lending to firms increased moderately. The demand for medium- and long-term loans for debt restructuring and consolidation made up for the weak demand for investment funding. From the summer onwards banks gradually reverted to applying normal credit standards, which they had tightened towards the end of 2008 and the first half of 2009. Lending to firms classified as high risk on the basis of their financial statements recorded a less favourable trend than lending to other firms.
The growth rate of lending to small firms was consistently lower than that of lending to other firms, extending a trend under way since 2005. Lending to small firms was supported in part by the expansion in transactions secured by mutual guarantee institutions, but the activity of these institutions is hampered by the small size of many of those established in Puglia.
Interest rates on short-term loans fell by about the same amount as at national level. However, against the background of declining rates, banks became more selective in setting the terms and conditions of credit, including vis-à-vis large companies. Consequently, there was a widening of the gap between the rates applied by banks to firms belonging to the same size class but having different risk profiles.
Lending to households grew by 6.8 per cent. The demand for mortgages picked up in the first few months of 2010, partly as a result of the increase in the supply of variable-rate mortgages with caps, which limit the risk taken on by borrowers.
In 2009 the riskiness of bank loans to both firms and households increased. The deterioration was less severe than in other parts of the country. However, there has been a rapid increase in substandard loans, which are not yet classified as bad debts but could presage an appreciable worsening of loan quality in the coming months.
Local public finances. - In 2009 local government was the general government subsector whose expenditure recorded the most moderate growth at national level. According to preliminary data, local government bodies in Puglia contributed to curbing expenditure: health care spending, which accounts for about half of local government current expenditure, remained unchanged in Puglia, compared with an increase of 2 per cent at national level. Investment, which represents almost three quarters of capital expenditure, diminished by 3.1 per cent in Puglia, whereas in Italy it grew slightly. Per capita expenditure is lower in Puglia than the national average, especially as far as municipalities are concerned.
At the end of 2009 the first intermediate check was carried on the progress made by the southern Italian regions in attaining the quality targets for some public services - the so-called service objectives - under the performance budgeting system introduced with the National Strategic Framework for 2007-13. Puglia scored an improvement for each of the objectives, securing €90 million additional resources, about 20 per cent of the total allotted for 2007-13. Measurement of the actual performance of important public services through objective indicators rather than relying on statements of the involved public bodies is a remarkable innovation in development policies.
