Italy

In-depth country-focused analysis on Italy's economic, political and operational risk environment, complemented by detailed sector insight

Italy

Italy's many structural economic weaknesses have been brought to light by the eurozone debt crisis. The country has a comparative advantage in a number of areas, including industrial design and innovation, fashion and clothing. However, there has been a lack of significant structural reforms to address Italy's decline in productivity growth and external competitiveness, which raises the risk that the country’s public sector debt burden will become unsustainable.

We keep our clients abreast of the latest market moves and political developments in Italy, as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 18 of Italy’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. Our aim is to keep you ahead of the curve, so you can operate with confidence in Italy.

Country Risk

Italy Country Risk

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Core Views

  • Italy will return to modest growth in 2014 and 2015, although a weak labour market and ongoing contraction in credit growth will continue to impede a more robust recovery.

  • We view positively the urgent structural reform agenda of new Prime Minister Matteo Renzi. However, we remain sceptical that he will be able to avoid the chronic instability, political infighting and rigid vested interests that that have in the past impeded reform efforts.

  • Lack of significant structural reform in previous years seriously jeopardises Italy's long-term growth trajectory, and raises the risks that the public sector debt burden will become unsustainable.

  • Even if reforms aimed at addressing Italy's decline in productivity growth and external competitiveness are passed, an ageing demographic profile will make debt consolidation efforts over...

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Italy Industry Coverage (18)

Agribusiness

Italy Agribusiness

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BMI View: Our outlook for the Italian agribusiness sector has turned more positive, as we believe the dairy and livestock industries will record fairly robust growth through to 2018/19 on the back of the removal of the EU's milk production quota in 2015, and the opportunity for Italy to develop its value-added exports We expect corn production to post the strongest growth out of the grains complex, largely due to base effects, as we believe wheat output will remain broadly flat due to little opportunity for area or yield growth.

Key Forecasts

  • Wheat production growth to 2018/19: 9.8% to 7.7mn tonnes. We expect wheat production in Italy to remain broadly flat on current...

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Autos

Italy Autos

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Vehicle sales in Italy grew 5.0% in 2014 to 1,491,965 units. This recovery in sales emerged alongside a marginally brighter macroeconomic environment for Italy in H114 compared to the recessionary 2013 period. This growth was spurred by a 4.2% expansion in passenger car sales, 16.4% growth in light commercial vehicles (LCVs) while flat sales in the heavy truck segment and a 16.7% fall in bus and coach purchases tempered vehicle sales as a whole.

Despite our worsened 2015 outlook for real GDP and private consumption growth in Italy, we expect sales growth to come to all market segments as low base effects and pent-up demand take hold. We highlight the LCV segment as the industry outperformer over the year, forecasting 9.0% growth, followed by the passenger car market, which we expect to grow 4.5%. On the whole, we forecast a 4.8% expansion in vehicle sales over the year.

We forecast a 4.5% expansion in car sales owing to...

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Commercial Banking

Italy Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Defence & Security

Italy Defence & Security

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BMI View: Italy retains one of the largest defence industrial sectors in Europe. The country also has one of the largest combined armed forces in NATO and is a major exporter of defence equipment in Europe and throughout the wider world. The country has industrial competencies and expertise across the land, sea and air domains. In particular, Italian manufacturers are active in the design, development and production of military fixed and rotary wing aircraft, defence electronics such as radar and tactical communications, small arms and light weapons, armoured vehicles, naval armament and warships. In recent years, Italian manufacturers have also expanded into the ground-based air defence domain, notably the design and production of medium range surface-to-air missiles.

Although Italy is home to a large defence sector and is a major exporter of defence equipment, the country has in recent years...

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Food & Drink

Italy Food & Drink

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BMI View: The Italian economy will return to growth in 2015 after a three-year recession. We forecast real GDP to expand by 0.5% in 2015 and 1.0% in 2016. While we expect the economic outlook to improve significantly in 2015, severe structural challenges are still facing the Italian economy. According to our forecasts, Italy's economic output will remain well below pre-crisis levels over the medium-to-long term, as we forecast annual real GDP growth will not break 1% over the next 10 years. With one of the highest household savings rates in Europe prior to the crisis and among the lowest private debt burdens, private consumption has not been a strong driver of GDP growth in the past decade. We do not expect this trend to change and forecast private consumption growth of 0.6% in 2015 and 0.7% in 2016....

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Freight Transport

Italy Freight Transport

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Italy's freight mix is set for a relatively subdued 12 months in 2015 with our revising down of 2014 and 2015's real GDP growth estimate and forecast respectively as the sector's fortunes continue to reflect those of the wider economy. Italy's protracted economic recovery failed to gain traction in H114 and now faces strong headwinds from a weakening regional growth outlook.

Proving detrimental to Italy's freight sector is the fact that external account rebalancing will continue to be sub-optimal in light of weak domestic and external demand. This is characterised by an ongoing contraction of imports as opposed to strong exports or improved external competitiveness. Nevertheless, export growth will remain uninspiring and unable to drive additional current account surplus widening.

In 2015, the outperformer in terms of year-on-year (y-o-y) growth is set to be rail freight at 2.28%, ahead of both road and air freight (1....

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Infrastructure

Italy Infrastructure

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Our outlook for Italy's domestic economy remains downbeat, with limited GDP growth of just 0.4% expected in 2015. Although an improvement on previous years, this is no-where near significant enough to impact positively on the stagnant construction sector in the country. The restrictions on public spending under austerity measures continue meaning there is little capacity for public investment in infrastructure projects, and Italy's housing sector continues to decline. As such we expect to see the eighth consecutive year of contraction in terms of construction industry value in 2015, followed by only very limited annual growth throughout the remainder of the forecast period.

Key Trends And Developments:

  • Italy's economy is forecast to return to growth in 2015 (0.4%), though the construction sector is expected to continue...

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Insurance

Italy Insurance

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BMI View: In the short-term, the development of premiums in USD terms will continue to be constrained by the likely weakness of the EUR. The growth in life premiums over the last two years has been formidable. This is thanks to the low returns from other asset classes that Italy's savers and investors normally consider, such as cash, bonds and real estate. Our forecasts have assumed a stabilisation in the life segment, which accounts for about 80% of total premiums written in the insurance sector. Mainly because of competition in the motor vehicle insurance sub-sector, which accounts for half of all activity in the non-life segment, the prospects for non-life insurance are less exciting. Nevertheless, there is scope for the non-life insurers to achieve good growth simply by selling non-motor insurance products to first time...

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Medical Devices

Italy Medical Devices

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BMI Industry View: The Italian medical device market ranks fourth in Western Europe (WE) but per capita expenditure is low by WE standards. The public sector, which accounts for around 70% of the market, is notorious for the amount of red tape and payment delays. This has affected the sustainability of small medical device companies. However, the adoption of the latest European Directive on delayed payments (Decree 192/2012) resulted in a reduction in the level of debt during 2013 and 2014. As the public sector is struggling to cope with rising costs, th e government has implemented a number of laws in recent years that will continue to...

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Metals

Italy Metals

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BMI View: The outlook for Italy's metals sector remains fraught with challenge, with weak economic growth, falling capacity and increasing competition combining to stymie production. While consolidation and strategic developments are likely to ensure the industry's long-term survival, we expect the operating environment for Italian producers of steel and other metals to remain extremely challenging over 2015 and beyond.

Italy's metals sector is at a crucial stage of its development. Having traditionally been a high volume producer of key industrial metals, including steel and aluminium, the country will need to consider ways to make itself competitive once again in an increasingly...

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Oil & Gas

Italy Oil & Gas

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BMI View: We maintain a subdued outlook for Italy's oil and gas industry due to projected gradual decline in country's oil and gas reserves as well as rapid downsizing of its refining sector. While the increased investor interest in Italy's prospective Adriatic and gradually imporving regulatory environment are positive signs, we believe these improvements will take some years to garner more substantial industry changes.

Headline Forecasts (Italy 2013-2019)
2013e 2014e ...

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Petrochemicals

Italy Petrochemicals

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The temporary reopening of Versalis' 490,000 tonnes per annum (tpa) in Porto Marghera should help alleviate market shortages caused by the stoppage at the Shell's 910,000tpa cracker in Moerdijk, Netherlands, but BMI's latest Italy Petrochemicals Report does not envisage this situation lasting beyond 2015.

Ethylene capacity in Italy has been cut by nearly a third since the 2008 financial crisis, with a corresponding decline in derivatives production. The situation is a product both of falling domestic and regional demand as well as the decline in the competitiveness of inflexible naphtha-based crackers in the EU. While the cost of naphtha has fallen sharply alongside the decline in the price of crude, structural problems within the Italian petrochemicals industry mean this is insufficient to hold back and reverse the tide of plant closures and...

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Pharmaceuticals & Healthcare

Italy Pharmaceuticals & Healthcare

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BMI View: SNS pharmaceutical expenditure will decline in 2015 - creating revenue pressures for drugmakers and pharmacies in Italy and increasing out-of-pocket costs for the population. In February 2015, it was announced that the public healthcare costs will be slashed by EUR2.6bn (USD2.9bn) in 2015. We note that this accounts for a large proportion of the EUR5.2bn (USD5.8bn) spending cuts announced by the government.

Headline Expenditure Projections

  • Pharmaceuticals: EUR19.94bn (USD26.72bn) in 2014 to EUR19.07bn (USD20.98bn) in 2015; -4.3% in local currency terms and -21.5% in US dollar terms.

  • Healthcare: EUR145.41bn (USD194.85bn) in 2014 to EUR147.28bn (USD162.01bn) in 2015; +1.3% growth in local currency terms and -16.9% in US dollar terms.

...

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Power

Italy Power

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BMI View: Thermal power capacity retirements amid stagnant power consumption underpin our bearish outlook for Italy's thermal power sector - although an expected uptick in economic growth and lower natural gas prices, coupled with an announced capacity market, could offer some relief to gas-fired power generators. We expect the country's renewables and power transmission and distribution sectors to offer the greatest investment opportunities, despite a relatively uncertain regulatory outlook.

We maintain that the renewable energy sector and...

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Renewables

Italy Renewables

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BMI View: Although we forecast non-hydropower renewable generation to cross the 20% mark of overall electricity generation in 2015, year-on-year growth is expected to fall to 3.3%. Also our long-term outlook for the sector remains subdued, growing by an average of 2.13% annually between 2015 and 2024. Reasons for this include the ongoing volatile economic situation and uncertainties over governmental subsidies following the stop of new solar Feed-in Tariffs (FiTs) in 2013.

Key Trends And Developments

  • The Italian parliament and senate voted in favour of retroactive reductions to solar FiTs in August and the ruling is expected to take effect in 2015. Under the new ruling, existing solar plants with a nominal peak power exceeding 200kW will suffer a 10-25% tariff reduction.

  • The Italian government ceased...

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Telecommunications

Italy Telecommunications

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BMI View : The Italian telecommunications sector is highly mature and very competitive. The austere economic climate has led to a weakening in consumer spending that has impacted operators of all sizes. This is exacerbated by regulatory pressure on retail and wholesale pricing even as operators are forced to invest heavily in next generation networks. This is not sustainable. WIND 's sale of telecoms towers is a small but necessary step; the potential sale of WIND to 3 Italia is a larger step, but one that is in tune with developments across Europe. Telecom Italia 's rebranding and deep spending on infrastructure is not sustainable and plans to install the operator as the leader of a new pooled broadband infrastructure provider are possibly...

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Tourism

Italy Tourism

Water

Italy Water

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BMI View:  We have extended our forecasts this quarter to cover new indicators, including extraction by source (lake, river, reservoir, desalination, ground water, spring water, and non-mains consumption). Overall we maintain our outlook on the Italian water sector, emphasising the need for further consolidation, improved management and additional investment. However, given the economic slowdown and continued government financing issues, we do not anticipate much in the way of improvement over our forecast period.

The water sector represents a significant potential growth area in Italy, as the government is keen to attract international investors. However, as with the construction sector as a...

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