No. 21 - Economic developments in SardegnaAnnual report

In 2010 economic activity in Sardinia stagnated at the previous year's level. According to first estimates regional GDP barely grew, after declining by 3.6 per cent in 2009.
Following a significant fall in 2008 and 2009, activity in industrial sector staged a partial and still weak recovery. Still, the companies' crises in large-scale basic production, with major output shutdowns and a consequent weakening of activity in related businesses, increased the structural fragility of the sector and made a strengthening of firms' capacity for innovation a matter of urgency. With domestic demand still weak, the recovery in world trade under way since the second half of 2009 had limited positive effects in Sardinia, owing to the limited openness of the regional economy.
Construction activity continued to decline, especially in residential building, while an upturn of investment took place in public works. Service companies, which felt the effects of the recession with a lag and less sharply than those in other sectors, are still suffering from the weakness of household consumption.
Partially depressed conditions persist in the labour market, although a recovery has been somewhat observed in the final part of the year. The trend remained negative for men, whereas for women there was a clear-cut improvement. Overall, the decline in employment came to a halt albeit the unemployment rate edged up due to the further increase in the number of job-seekers. As in 2009, recourse to the Wage Supplementation Fund again mitigated the effects of the recession.
The pace of bank lending was affected by the weakness of economic activity. Loans to customers resident in Sardinia continued to slow; at the end of the year the expansion was about half the national figure. The growth in bank lending to households picked up slightly as a result of the moderate recovery in mortgages for house purchase. The performance of consumer credit was affected by the slowdown in loans granted by non-bank financial companies.
The growth rate of loans to firms stagnated, as a result of the basic flattening of lending to medium-sized and large companies; credit to small firms diminished slightly. The feebleness of the recovery and the uncertain outlook for future growth accounted for the observed dynamics. Among the productive sectors, lending to manufacturing industry significantly reduced; credit to construction firms slowed considerably, while loans to service companies continued to grow at a sluggish pace.
On the basis of the Bank of Italy's half-yearly Regional Bank Lending Survey, there was an increase in firms' demand for credit in order to restructure existing debt positions. On the supply side, banks reported that they had tightened grant standards slightly in the second part of the year; their stance is likely to remain prudent in the early months of this year.
Interest rates on loans to customers resident in Sardinia remained low by historical standards; however, in the final part of the year the cost of credit began to rise.
The recent recession caused a worsening in credit quality as regards to all degrees of impairment. In 2010, though, the ratio of new bad debts to outstanding loans diminished somewhat for both firms and households. The ratio of loans to customers deemed to be in temporary difficulty remained unchanged.
Bank funding in the region shrank, mainly as a consequence of the reduction in households' deposits. In 2010 securities held for custody at banks declined; the large increase in the value of Italian government securities and investment fund units was not enough to compensate for the drop in investment in other instruments, particularly equity and bonds.
The regional credit market concentration, fairly lower with respect to the start of the decade, remains higher than the national average.