Economic activity stagnated in Lazio in 2011. A slowdown in business investment was accompanied by weak household consumption. The slight expansion in output in the first three quarters gave way to an abrupt contraction in the fourth, in connection with the financial turbulence and the weakening of the international economic cycle. In the first quarter of 2012 economic activity continued to contract in Lazio, as in the rest of the country.
Industrial production grew moderately in 2011 but remained well below the pre-2008 levels. Investment remained limited, in part owing to the low capacity utilization rate. Exports continued to provide an expansionary impulse, favoured by Lazio's specialization in medium- and high-tech sectors. The Bank of Italy's surveys found a deterioration in industrial firms' expectations for the current year.
Construction activity continued to decline in 2011, with the trend negative in both residential building and public works. Construction firms' profitability fell steeply. In the property market, house sales stagnated and house prices were flat. The surveys of estate agents in the first quarter of 2012 reported a lengthening of time to sale. For public works, the availability of financing from local authorities is tending to shrink further.
Private services, which account for over 60 per cent of Lazio's GDP, registered a small expansion in 2011, in line with the national average. The tourism sector recorded considerable growth, especially in the international component, while transport services registered a slight decline, which became more substantial in the final months of the year owing in part to the rise in fuel prices. Household confidence worsened, in line with developments in the rest of the country. Consumption in Lazio fell in real terms in 2011. This affected retail trade, especially sales of durable consumer goods and at smaller retail outlets. The negative signs in retailing intensified in the first few months of 2012.
Employment, which had been affected less in Lazio than elsewhere by the crisis of 2008-09, deteriorated progressively starting in mid-2010. In 2011 the number of hours worked decreased while hours of wage supplementation began to rise again, especially in services, and the unemployment rate also turned upwards. Youth employment continued to trend downwards, chiefly reflecting the difficulties of labour market entry. Household wealth held stable in the region; per capita, it remains higher than the national average.
After growing slightly in the first nine months of 2011, bank lending to private customers resident in Lazio slowed in the last quarter, in concomitance with the tensions in the government securities markets. In March 2012 bank lending to the productive sector was stationary overall, but lending to small firms continued to fall. The reduction in loans granted by the five largest banking groups was counterbalanced by the expansion in those by other banks.
The surveys of banks found a tightening of lending conditions in Lazio in the second half of 2011, partly in connection with the difficulties in funding. Banks' tightened both by raising interest rates and by reducing the amounts disbursed. In 2011 the stagnation of economic activity was also reflected in a weakening of demand for business loans; in the banks' opinion, this trend could persist in the current year. The surveys of firms found an increase in the demand for loans to finance working capital; this was related both to the decline in economic activity and to the difficulty of collecting accounts receivable.
Loans for house purchases decelerated in 2011, in line with the trend of house sales. More restrictive supply conditions were accompanied by weak demand, reflecting the erosion of household confidence. In the second half of the year, during the phase of greatest difficulty in bank funding, the average annual percentage rate of charge on new house purchase loans rose. In 2011 the average size of new loans grew again. Only a small percentage of households in the region have a home mortgage instalment exceeding 30 per cent of income, the threshold conventionally associated with financial vulnerability.
The weakness of economic activity was reflected in a deterioration in credit quality, with a rise in bad debts in relation to outstanding loans to firms, particularly in the construction sector. Bank of Italy projections indicate that the deterioration could continue. The riskiness of loans to households remains stable.
In the final part of 2011 households' bank deposits contracted, particularly as regards current accounts; deposits with agreed maturity grew, more markedly in the first few months of this year. The financial wealth of households in Lazio has stagnated since 2009; the share of assets consisting of less risky assets has increased to more than a third of the total, a higher proportion than the national average.
Dealings between banks and customers increasingly take place through electronic channels. At the end of 2011, the number of Internet banking accounts per 100 inhabitants in Lazio exceeded the national average. The number of corporate banking contracts signed by firms active in the region is also growing rapidly; their incidence among firms is in line with the national average. After rising until 2009, in the last two years the number of bank branches per 10,000 inhabitants has fallen less sharply than the national average.
