Economic activity expanded weakly in Veneto in 2011. Exports continued to provide the main stimulus to growth, though slowing due to the deceleration of the world economy. The recovery towards the activity levels recorded before the recession of 2008-09 halted in the spring and a downturn ensued in the final part of the year, reflecting the worsening of confidence caused by the strains in the sovereign debt market, the fiscal consolidation measures and the credit crunch. The economic situation kept worsening in the first quarter of 2012.
Overall, industrial production increased slightly in 2011, but it remained well below its 2007 levels. Manufacturers of capital goods and larger firms achieved better results, thanks to the growth in exports, especially in Asian and American markets, while producers of durable consumer goods were hit harder by the decline in domestic demand. Steady high margins of idle capacity hindered investment, which contracted last year, after a partial recover in 2010. The uncertain outlook for demand and the persistent, though lessening, strains in borrowing conditions held back investments planned this year. Since 2008, the international crisis has accelerated the selection and reorganization of industrial firms in the region; the exit of less efficient production units has intensified. Manufacture in Veneto has lost about one tenth of its labour force since 2007, notably in the traditional sectors of fashion and furnishings.
Construction activity continued to decline in 2011. The decrease in housing investment, which suffered from the decline in households' disposable income, was accompanied by a drop in non-residential construction, particularly public works, hampered by the budgetary problems of local governments. In the second half of the last decade, investments by municipal governments fell by nearly one third. Among the many factors that contributed to this reduction, the most relevant were the outsourcing of some local public services, the decline in financial resources and the rules of the Domestic Stability Pact.
In the service sector, retail trade suffered from the drop in households spending, particularly on durable goods, which was held by the weakness of disposable income and by the uncertain outlook in the labour market. The tourism sector expanded thanks to foreign arrivals, which are now predominant in Veneto. Transport and logistical services benefited from the growth in foreign trade and tourism.
Employment expanded. The growth involved only the older cohorts, partly due to the changes in the age requirements for retirement. In the last part of the year the expansion in employment stopped and the hours of ordinary wage supplementation benefit turned upwards. The employment rate of the younger cohorts, which had been declining since 2007, reduced further.
Since last summer, the sovereign debt crisis worsened Italian banks' funding conditions. The tensions rapidly affected banks' lending conditions, which became more restrictive in the second half of 2011, as the borrowers' creditworthiness worsened. At the end of the year, bank lending to firms was contracting, reflecting the weakening of firms' credit demand, especially for investment. Lending to households slowed, partly as a result of the drop in new house loans. The tightening of loan supply conditions translated into an increase in the cost of credit.
The worsening of the economic situation affected credit riskiness. In the final part of 2011 and in the first few months of this year, the ratio of new bad loans to total outstanding loans to enterprises increased again.
Households' ability to save continues to be affected by the negative performance of the economy. Households' financial wealth in Veneto has contracted since 2007, mainly due to the fall in stock prices. Last year, the composition of households' financial assets changed in favour of government securities and bank instruments, in response to the rising yields on the sovereign debt and the increase in interest rates on deposits and bank bonds.
The crisis has accelerated the restructuring of banks' distribution networks: together with a decline in the number of bank branches, underway since 2008 and accompanied by a reduction in bank staff, there has been a further increase in the use of internet banking.
