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Country Commercial Guides
FY 2000: Italy
CHAPTER II. ECONOMIC TRENDS AND OUTLOOK MAJOR TRENDS AND OUTLOOK Italy is the slowest growing among the Euro-11 and is likely to remain so through 2000. Italy has been the slowest growing G-7 country in the 1990s (1989-1999). This reflects the substantial fiscal tightening and restrictive monetary policy needed to get into EMU and structural impediments that discourage investment and job creation. Italy's real GDP grew 1.3 percent in 1998, significantly less that the 2.9 percent growth in the Euro-11 area and the 2.2 percent of the industrialized economies. Domestic demand remained the dominant factor in GDP growth, while the contribution of net exports was negative. Most economic forecasters expect GDP growth to decelerate further in 199 exceeding slightly 1 percent and above 2 percent in 2000. While exports grew, imports grew faster, with the result that the trade surplus of $35.6 billion in 1998 was 10 percent smaller than the balance of $39.9 billion surplus in 1997. A similar level of surplus is forecast for 1998. Through 1999 Italy reduced foreign exchange reserves to $53.6 billion, after the record high registered at the end of 1997 ($76.0 billion). On inflation, Italy is now firmly within norms specified for Economic and Monetary Union, a major achievement for this historically inflation-prone country. Though still relatively high by European standards, consumer inflation stood around two percent in 1997 and 1998 and is expected to decelerate to 1.5 percent in 1999. The 1992 and 1993 agreements on wage adjustments, which has helped keep wage pressures on inflation low, have been renewed by December 1998 and will be effective through 2002. Besides guidelines for wage negotiations, the new pact cuts some labor costs and includes incentives fro investment and worker training. Tight monetary policy by the Bank of Italy has also helped bring inflation expectations down. The economic challenges facing Italy are keeping the government deficit under control, implementing a plan to reduce the high level of government debt and addressing unemployment and the structural rigidities of Italian market. ECONOMIC TRENDS AND OUTLOOK FOR AGRICULTURE Italian agriculture faced a disappointing year in 1998. Many of the problems were a result of poor weather conditions. Spring freezes hurt much of the fruit crop. 1998/99 citrus production was down due to the colder weather during the final stages of harvest. In particular, orange and tangerine production were down 25% and 15%, respectively. Vegetable and milk production were also low. Despite the fact that tomato production increased 15% from 1997 and was a record high for Italy, total output of tomato products was low due to poor quality tomatoes resulting from unfavorable weather conditions. Total oilseed production declined by 11 percent due to the adverse weather conditions (including olive oil,-27%). Wine production increased marginally (+6%) from the 1997 levels. Despite increased demand for beef and pork, Italian production has declined due to low prices and structual problems. Labor in the agricultural sector contracted 2.3% to 1.39 million and long term credit for investment in equipment and infrastructure remained scarce. Farmgate prices are decreasing. Finally, changes in the green rate also affected the competitiveness of Italian farmers vis a vis their EU counterparts. Italy's agricultural trade continued to be composed mainly of raw material imports from other EU member states (approx 74 percent) and value-added exports to other EU member states (approx 70 percent). U.S. exports to Italy were valued at slightly over $1 billion in 1998 (5% of total imports). Neither U.S. nor Italian trade statistics reveal the actual level of imported U.S. products, because of the EU open borders. Many U.S. food and agricultural products (i.e. ingredients, frozen foods and beverages, etc.) arrive in Italy via France and Germany. This trend toward regional distribution has consolidated during the last three years and is expected to continue. According to U.S. trade statistics the leading U.S. agricultural exports to Italy in 1998 were livestock and meat ($206 million), forest products ($198 million), cotton ($142 million), grains and feed ($137 million), soybeans and soybean meal ($101 million) and fruits and vegetables ($104 million). The following product categories also performed well in spite of the Italian recession: processed fruit and vegetables, snack foods, dried fruits (prunes), and dried nuts (almonds), seafood (salmon, live lobsters and frozen squid), hides and skins (leather and reptile skins), vegetable seeds and pet food. Italy exported $1.5 billion in agricultural, fish and forestry products to the United States in 1998, including; olive oil ($75 million), wine ($134 million), cheese ($50 million) and forestry products ($32 million). The following national and international developments are expected to shape Italy's agricultural sector in the future: Italy's acceptance in the European Monetary Union; the national budget deficit; CAP reform (i.e. reduced subsidies for cereals and oilseeds, and high penalties for out of quota production of tobacco and milk); EU Enlargement and the Mediterranean Agreements; and new environmental restrictions as a result of the "green" movement (i.e. more stringent packaging requirements, tighter controls on the use of chemical inputs, and possible limits on the use of biotechnology). These factors are expected to foster a very competitive environment, which may drive some marginal producers out of the farming sector. PRINCIPAL GROWTH SECTORS Italian companies are expected to boost investment in response to domestic demand as Italy's economy gradually recovers and in response to export demand from European Union markets enjoying more robust economic growth than Italy. In addition, Italian firms are seeking to improve their operations to compete effectively in the increasingly competitive European market. This increase in investment will create excellent opportunities in Italy for American exporters. American investors and exporters may also find opportunities in the ongoing privatization program. The full liberalization of the Italian telecommunications market, which officially entered into effect on January 1, 1998, is creating substantial business opportunities. Privatization and liberalization in the energy sector following EU directives should also spur future demand for equipment and services in this sector. In addition, the Italian public as well as private sector is looking for ways to improve efficiency while reducing costs, through outsourcing, training programs and better application of new information technologies. U.S. firms with products and services that contribute to the further rationalization and increased competitiveness of the Italian economy will find that Italy offers significant opportunities. Despite the current economic climate in Italy, the fluctuations in the dollar/lira exchange rate, and the often protectionist regulations of the Common Agricultural Policy (CAP), there are still many opportunities in the near-to-medium term to both maintain and expand the market for a variety of U.S. agricultural products. Specific agricultural and non-agricultural products and services which offer good prospects for U.S. firms are described in Chapter V below. GOVERNMENT ROLE IN THE ECONOMY The Italian state traditionally played a dominant role in the Italian economy. In the early 1990's, the Italian government controlled about a third of all industrial activity and almost two-thirds of banking operations. An ambitious privatization program begun in 1992 has resulted in elimination or substantial reduction of the government's controlling role in various companies. To date, Italian privatizations have raised 117.8 trillion lire (69.3 billion USD). Since 1993, four major banks, Credito Italiano, Banca Commerciale Italiana, Istituto Mobiliare Italiano and Banca Nazionale del Lavoro, and the country's second largest insurance company, INA, have been totally privatized. IRI, once the major government-owned industrial holding company, is dismantling itself through sell-offs. Telecom Italia was sold in a stock offering in 1997. There have been four offerings of stakes in oil and gas parastatal ENI, the last of which reduced the government's holdings to under 40 percent. While the privatization process has been successful to date, several major sales are yet to come: ENEL (electricity), Finmeccanica (varied industries), Alitalia (national airline company) Rome Airports and Autostrade (highway system). Together, these companies have been valued at over $30 billion. In addition, several of Italy's largest banks are controlled by regional charitable foundations. The movement toward increased consolidation in the banking sector has shifted ownership of some key banks away from foundations and this trend should continue. Treasury is also planning to sell its stake in Credito Industriale Sardo (53%), to privatize Mediocredito Centrale and to place on the market its minority stake in Banco di Napoli, IMI, Ina and Telecom Italia. BALANCE OF PAYMENTS SITUATION Italy has had current account surpluses since 1993. In 1998, the surplus was 39.1 trillion lire ($22.5 billion), down from the 60.9 trillion lire ($35.7 billion) surplus registered in 1997. Current account surpluses since 1993 brought Italy's net external position in balance at end of 1997, but the net investment outflows through 1998 produced a net external debt position of $53.6 billion. Italy's capital account deficit worsened from 12.2 trillion lire ($7.2 billion) in 1997 to 30.8 trillion lire ($17.7 billion) in 1998. Both foreign portfolio inflows, and Italian portfolio outflows increased dramatically, but the latter faster than the former, resulting a 2.2 trillion lire ($1.3 billion) net outflow, following a 6.9 trillion lire ($4.0 billion) net inflow posted in 1997. This reflects the intensive shift of Italian investors' portfolios into foreign assets during 1998, following a trend started in 1997. There was a net outflow of direct investment totalling 16.4 trillion lire ($9.5 billion) in 1998, slightly higher than the net outflow of 11.8 trillion lire ($6.9 billion) registered in 1997. INFRASTRUCTURE Railroad--The railroad system is nationalized and operated by the Italian State Railways (Ferrovie dello Stato, abbreviated FS), a government agency. The railroad provides an efficient and economical method of transportation. More than half of the rail system is electrified. Highway--The highway system is approximately 197,000 miles, including over 3,000 miles of superhighways, called "autostrade." The network connects the major industrial centers and offers easy access to Northern Europe. Trucking services are operated mainly by private companies under government concession. Air--Alitalia, a state-owned company that is scheduled to be fully privatized, is Italy's principal airline providing both international and domestic service. Additional service is provided by Lauda Air, Itavia, Air Europe and Meridiana airlines. Charter service is offered by SAM, an Alitalia subsidiary, and by Air One, while air-taxi service is available from Unijet Italia in Rome and Agena in Milan. Italy has an extensive airport network consisting of 19 international, 17 domestic, and 59 general aviation airports. Federal Express, DHL, and other rapid delivery services are also available. Sea--Italy has six major seaports: Genoa, Livorno, Naples, Palermo, Trieste, and Venice. In addition, there are 35 smaller ports mostly used for coastal shipping. Industrial Districts -- Small and medium sized enterprises, especially in the North, have contributed heavily in terms of output, exports and job creation. Their activities have been fostered by the functioning of "industrial districts". The districts take advantage of areas where many small enterprises operate in the same industry and where the steps of production are divided up among the various enterprises. Over time, cooperation among the firms (and often unions of their workers) has paid off in better exchange of information, group purchases, and market development. The districts have been recognized in law to give the communities the tools to plan joint activities, tap national and regional financing for projects, establish service contracts, for example, with research institutes and universities, and otherwise maximize public and private resources for the success of their industry and local development. Y2K--The potential impact of the Y2K problem on the Italian infrastructure is difficult to assess. Awareness of the issue, and efforts at making corrections, increased sharply in the first half of 1999. Generally speaking, the banking and finance sector, large companies and the dominant suppliers of electric power, natural gas and oil appear to be best prepared. Those less advanced in Y2K corrections include providers of health, water and wastewater and telecommunications services, small firms and local governments.
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Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
