Economic activity in the provinces of Trento and Bolzano slowed in 2011. According to preliminary estimates by Prometeia, the GDP of the region comprising the two provinces nevertheless grew by 0.7 per cent (in line with the average for the North East). An important contribution came from exports, which were affected in the second half, however, by the slowing of world trade. By contrast, domestic demand was weak.
The value added of manufacturing in the region grew slightly, with a pronounced deceleration from the previous year. The turnover of firms interviewed for the annual Bank of Italy survey stagnated and their investment contracted. Firms expect both these aggregates to decline in 2012.
Construction activity continued to decline; the sector's value added diminished by around 2 per cent, as in 2010. The property market showed faint signs of recovery, but prices continued to fall in real terms.
The service sector recorded a modest increase in value added. Wholesale trade turned in a positive performance, while retail trade was penalized above all by the collapse of car sales; sales of durable goods fell overall by 2.5 per cent. The tourism sector saw a further slight increase in the number of arrivals and overnight stays, thanks mainly to the influx of visitors from abroad; the summer season was especially positive.
Employment stagnated overall, but with varying developments across age groups; in particular, there was a significant increase in employment among persons aged 55-64, connected both with demographic trends and with the progressive raising of retirement age. Labour demand was weak: there was a decline in hiring in Trento province (concentrated among young workers) and a slight increase in Bolzano province. On average for the year, recourse to wage supplementation diminished; in the first quarter of 2012 the number of hours authorized turned upwards in the Trento province but fell further in Bolzano. Labour market participation continued to rise, but this resulted in an increase in the number of job-seekers. Unemployment remained low by national standards, but the unemployment rate rose in both provinces, to 4.5 per cent in Trento and 3.3 per cent in Bolzano.
Bank lending to residents slowed. The deceleration was concentrated in the fourth quarter, in connection with the deepening of Italy's sovereign debt crisis. The slowdown in credit was shaper for firms, with lending growth rates of practically nil in the twelve months to December.
Both demand and supply factors affected the performance of lending to the productive sector. On the one hand, the weakness of investment was reflected in a reduction in firms' demand for credit. On the other, banks tightened their lending conditions, increasing the spreads on loans, especially to riskier firms, and demanding more collateral. The year also saw a contraction in the amounts of credit offered, in connection with strains on liquidity and the increase in funding costs. Including loans granted by non-bank financial companies, lending to manufacturing firms stagnated in the province of Trento and expanded slightly in the province of Bolzano, while credit to construction firms and service businesses contracted.
Lending to households by banks and financial companies expanded in both provinces at a rate of about 3 per cent; the increase involved both loans for house purchases and consumer credit.
The interest rates on bank loans continued to rise in 2011, more steeply in the second half.
Reflecting the weakness of cyclical conditions, the quality of loans to firms residents in the province of Trento worsened: both new bad debts and loans with other repayment anomalies increased in relation to the stock of outstanding loans. In the province of Bolzano, the ratio of new bad debts to outstanding loans diminished, while that of substandard loans rose slightly.
The quality of loans to households remained high, though with a slight deterioration in the province of Trento. Households' bank deposits grew, driven by the increase in term deposits; on the other hand, the value of the securities they held with the banking system diminished in all the main components except for government securities. Banks' fundraising (deposits and their own bonds) from households and firms contracted slightly in the province of Trento and increased in that of Bolzano.
