Following a feeble recovery in 2010, the economy of Emilia Romagna slowed again in the second half of 2011 as domestic demand contracted and world demand weakened. According to Prometeia estimates, in 2011 the region's GDP grew by 0.8 per cent, somewhat higher than the Italian average. Domestic demand, particularly investment, was weighed down by uncertainty about the evolution of cyclical conditions, the effects of the series of measures taken to consolidate the public finances and the tightening of credit, in part related to the worsening of the sovereign debt crisis. Economic activity was sustained by foreign demand, which after regaining its pre-recession levels continued to grow rapidly in the first half of 2011 before decelerating in the second.
In industry, the upswing in orders that began in 2010 halted in the second half of 2011. On average, the annual increase was a little more than half that recorded the previous year. The disparities among firms' results widened further to the benefit of exporting firms. Export performances differed by sector and outlet market. Exports of capital goods and transport equipment showed strong growth. Among outlet markets, above-average increases were recorded for sales to the countries of Central and Eastern Europe and to the emerging countries of Asia and South America.
Investment in machinery, equipment and transport equipment diminished, owing both to high margins of spare capacity and to uncertainty about the economic outlook, which deepened in the second part of the year. Investment in construction continued to decline, reflecting both the crisis in the property market, which remained at post 2000 lows, and the fall in investment in public works, which was limited by tighter curbs on spending at local level. In services, retail sales fell further, especially at small and medium-sized outlets and in non-food goods sectors. By contrast, tourism enjoyed a recovery, after three years of stagnation, thanks chiefly to the foreign component.
Employment trends differed markedly by age group. There was an increase in the number of older workers, for whom eligibility requirements for long-service pensions have changed in recent years; the employment rate among younger workers fell, owing to the reduction in demand. Most new jobs were fixed-term positions. The percentage of young workers holding a university degree but employed in jobs requiring a lower level of schooling remained high. For persons aged 15-24, the unemployment rate doubled compared with 2007-08.
Although the ratio of households' total net worth (real and financial wealth) to disposable income remains high by international standards, in the past few years it has ceased rising, partly owing to stagnant property prices and the decline in the value of financial assets.
The expansion in bank lending petered out in the second half of 2011, giving way to a contraction in the opening months of 2012. On the demand side, this was primarily due to the decline in business investment and to fewer applications for house purchase loans from households, who were checked by the uncertain outlook for employment and in the real estate market. On the supply side, banks tightened their lending conditions, raising their interest rates; contributory factors were the higher cost of funding, in connection with the sovereign debt crisis, and the deterioration in the general economic situation, which increased the perceived riskiness of customers.
Banks differentiated their credit supply policies according to type of borrower. Loans to less profitable and more highly indebted firms diminished, while those to sounder businesses increased. New loans for house purchases went mainly to customer segments presenting lower credit risk.
The ratio of the flow of new bad debts to outstanding loans to households and firms remained at the previous year's high levels. An exception was the construction sector, where credit quality deteriorated further. The other indicators of loan repayment difficulty do not point to an improvement in credit risk in the near future.
The fall in households' disposable income curbed saving. Households invested mainly in government securities and time deposits, which offered rising yields.
The prospects remain clouded by a high degree of uncertainty. In industry and services, the Bank of Italy's surveys indicate a fall in turnover and employment in 2012 and a further decline in total investment, sharper than the national average. Credit supply conditions reportedly did not change significantly in the first part of the year and loan demand showed no signs of improvement. The expected decline in levels of activity could be aggravated by the effects of the earthquakes that hit some provinces in Emilia Romagna.
In the last ten days of May the provinces of Ferrara, Modena and, to a lesser extent, Bologna and Reggio Emilia were hit by earthquakes that caused deaths and serious damage to historic buildings, houses and factories. Preliminary estimates indicate that the food processing, biomedical equipment, ceramics and manufacturing of machinery sectors suffered major damage, along with the potential loss of several thousand jobs.
