According to estimates by Prometeia, Lombardy's gross domestic product increased by 1.9 per cent in 2010, after falling by 6.3 per cent in 2009. Exports provided the decisive impulse for growth. Led by the rapid expansion of world trade, they increased by 7.6 per cent in volume terms, recouping most of the recession-induced loss. The region's external openness and its specialization in relatively high-technology products favoured industrial value added, which gained 6.0 per cent. In the first quarter of 2011 industrial output recorded another, smaller gain. With the reabsorption of idle capacity, firms forecast the moderate resumption of investment this year.
In manufacturing, sales benefited from the policies that firms had put in place during the recession, in particular marketing, product improvement and diversification. The cyclical difficulties thus offered an opportunity to step up innovation, especially for larger producers, export-oriented firms and those with better pre-recession earnings.
By comparison with a sample of European regions with similar industrial structure and economic characteristics at the turn of the century, from 2000 to 2007 Lombardy's per capita GDP rose more slowly, in connection with a marked fall in labour productivity. Factors were poorer endowment of human capital, a low ratio of R&D spending to output, and stagnating patent activity. The contraction of economic activity during the recession was more pronounced in the Lombardy region than in its European counterparts.
In construction, especially public works, the recession is still not over. Value added fell by 3.5 per cent in 2010. The main road work projects are proceeding on schedule. In the service sector, value added rose by 1.4 per cent. The region continued to attract foreign tourists. Between 2001 and 2008 spending by foreign travelers in Lombardy had risen by more than the nationwide average; after the sharp drop due to the recession, only business travel recorded a modest upturn in 2010.
The recovery in economic activity has not yet translated into any improvement in the job market in the region. The number of people employed diminished by 0.6 per cent last year and the unemployment rate rose to 5.6 per cent. The deterioration apparently came to an end in the fourth quarter. Recourse to wage supplementation stabilized and then began to diminish, although it remained historically high. The tendency for young people to be excluded from work was aggravated, and the contraction of economic activity also reduced the women's employment rate, which fell back to 55.8 per cent in 2010, nearly 20 points lower than that for men.
Lending returned to growth. After the contraction of 2009, total credit disbursed in Lombardy rose by 2.2 per cent last year. Credit supply conditions remained broadly unchanged in 2010, after the sharp tightening observed in late 2008 and continuing, though less intensively, in 2009. Lending standards remain somewhat cautious, especially the banks' forecasts for the first half of 2011.
Lending to manufacturing firms was stagnant in 2010 but picked up in the early months of 2011. Demand was sustained by the cyclical recovery in output and firms' need for debt restructuring. Investment continued to make a negative contribution. Lending to the construction and service sectors diminished modestly. In line with the underlying economic trends, term financing decreased, leasing in particular, while bill discounting facilities were increased. Private equity and venture capital investment in the region contracted, even if the share of such investment directed to company expansion increased.
Households continued to seek loans for house purchase, which increased by 3.5 per cent, while consumer credit slipped by 0.2 per cent, reflecting slack sales of consumer durables. Given the increased proportion of variable-rate mortgages, the number of contracts that curb interest-rate risk and meet temporary repayment difficulty increased.
Systems of automatic rating of borrower firms are now quite common among the region's banks (more than 60 per cent have them), and following the crisis they have taken on added importance in the loan process. At the same time, however, qualitative elements are also considered, such as entrepreneurial ability and the economic prospects of the projects to be funded. These techniques are used more heavily than in the past not only in the decision whether or not to grant the loan but also in setting interest rates, monitoring asset performance, and determining the degree of independent lending power delegated to branch managers.
The financial situation of firms improved. The portion making a profit or breaking even for the year rose from 66 to 76 per cent, and those complaining of a tightening of credit conditions diminished. However, the variability of economic performance increased. Banks continued to differentiate lending terms according to borrower firm risk. During the recession, lending to firms whose accounts indicated a high degree of vulnerability was reduced, while that to sounder firms held roughly stable. For the more vulnerable, the share of loans backed by collateral increased, and the risk premium demanded in setting rates rose. Nevertheless, closer relationships with the lending banks attenuated these trends, especially for SMEs.
The decline in loan quality continued, though not as sharply as in 2009. The deterioration with respect to 2006-07 has been considerable. The number of loans showing repayment lateness or temporary difficulties has increased; such positions are more common among firms that had low operating profit and high debt even before the recession. The crisis has also affected bankruptcies, which increased faster in Lombardy than nationwide.
There was a 1.1 per cent decline in financial saving in the form of bank deposits and bonds, while households' holdings of securities edged upwards, as did the value of investment fund units. The Bank of Italy's biannual survey of household budgets found that the various forms of financial investment - bank and postal deposits, shares, bonds, and insurance policies, excluding certificates of deposit and savings passbook accounts - are more common among households in Lombardy than in the rest of Italy. Nevertheless, these households' competence in making investment decisions, though better than the national average, is limited. The survey households averaged just five correct answers out of ten simple questions designed to elicit financial knowledge; for university graduates, the figure rose to just over seven in ten.
