No. 14 - Economic developments in AbruzzoAnnual report

After the sharp contraction of 2009, the regional economy showed signs of recovery last year. Industrial sales and production returned to growth, thanks to the contribution of exports and the improvement in domestic demand.
The expansion did not extend to all firms or sectors. The large firms and the technologically more advanced industries displayed greater capacity for recovery while SMEs, especially those in the traditional Italian export sectors, continued to feel the effects of the recession. Analysis of company accounts confirms that in the wake of the crisis there was a wider dispersion of results.
The Bank of Italy's recent surveys of manufacturing firms highlight the link between capacity for innovation and performance. The firms that responded to the crisis with strategies of upgrading product quality or broadening product range had better sales expectations than the others.
For the region's economy, there is a good deal of room for improvement in capacity for innovation. At the turn of the century the main indices of innovation in Abruzzo were lower than in other, comparable European regions, and the gap has not narrowed.
Construction activity, after slumping sharply in 2008 and 2009, stagnated in 2010. The expansive impetus from the reconstruction of the earthquake zone was offset by a further fall in public contracts and company investment in the rest of the region. Residential building was impeded by the continuing decline in house sales.
Initial reconstruction in the earthquake zone concentrated on the less severely damaged buildings located outside the so-called "red zone". The work on the severely damaged buildings is still only getting under way.
After the sharp fall in 2009, the flow of tourists returned to growth last year. The slack growth of household incomes, held back by the state of the labour market, continues to impede consumption and retail sales.
Services were the sector most seriously affected by the 2009 earthquake. The resumption of commercial activity in L'Aquila is still very limited because most of the city centre remains cordoned off and there are no suitable alternative sites in the outskirts.
The decline in employment has come to a halt. The number of persons employed in services other than trade rose last year, while those in industry declined further. Wage supplementation, especially extraordinary and under-waivers benefits, remains at a high level. The unemployment rate rose and was above the national average. As in the rest of the country, the recession's effects have been particularly severe on young people, reinforcing the tendency not to participate in the labour market.
Bank lending returned to growth, thanks to the expansion of credit to households. The weakness of demand and investment, however, curbed the growth of lending to firms, especially large firms.
The recession had more serious repercussions on the loan repayment capacity of the firms whose financial structure was least well-balanced going into the crisis. The banks' new bad debt ratio rose, and the frequency with which credit positions were progressively downgraded also increased. The quality of credit to households held basically unchanged with respect to pre-recession levels.
The accumulation of financial wealth by the region's households was curbed by the decrease in the flow of saving. Higher returns on money market instruments led households to reduce their current account deposits and increase investment in repos, government securities and non-bank bonds.