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 (19)

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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As our 2015 and 2016 outlooks for real GDP and private consumption growth in Italy start to improve, we expect sales growth to come to all vehicle segments. We forecast total vehicle sales growth to be 10.1% in 2015. Low base effects, aggressive marketing campaigns by automakers and the growing need for fleet replacement of out-dated vehicles will all provide the strongest supports to vehicle sales volumes over the year.

We identify the passenger car segment as the industry's outperformer in 2015 and forecast 10.2%. The segment will outperform the commercial vehicle (CV) market - which we forecast to grow 8.9% - owing to the rise in consumer spending outpaces the slow recovery in fixed investment in the country. Factors specific to the passenger car sector segment will also spur the expansion of the segment. These being (a) the growing need to replace out-dated cars and (b) aggressive discounting campaigns by automakers.

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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 0.7% in 2015 and 1.1% 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 barely break 1% over the next 10 years. With one of the highest household savings rates in Europe prior to the global economic crisis, and among the lowest private debt burdens, private consumption was not a strong driver of GDP growth in the past decade. We do not expect this trend to change, and forecast private consumption growth of 0.5% in 2015 and 0.8% in 2016.

Headline Industry Data (local currency)

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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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Italy's construction industry is expected to record the eighth consecutive year of contraction in 2015, followed by a very limited return to growth in value in 2016. Government austerity measures remain in place, limiting capacity for public spending on increasingly necessary infrastructure improvement projects, and private investors continue to be deterred by an opaque regulatory environment, particularly in terms of the energy sector. The transport infrastructure sector appears to be attracting the most investment via a range of public-private partnerships and funding from various international bodies however overall Italy's infrastructure market remains weak, with less than 2% annual growth on average expected throughout the forecast period to 2024.

Key Trends And Developments:

  • While Italy's economy is forecast to return to growth in 2015 (with GDP growth of 0...

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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: Italy's oil and gas sector will continue suffering from the gradual depletion of its hydrocarbon reserves as well as the rapid downsizing of the country's ailing refining sector. While an active exploration scene and a gradually improving regulatory environment are positive signs, we believe these improvements will take some years to garner more substantial industry changes.

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Headline Forecasts (Italy 2013-2019)
2013 2014e

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Petrochemicals

Italy Petrochemicals

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A recovery in the Italian petrochemicals market in 2015 is unlikely to halt plant closures, although Versalis' cracker in Porto Marghera was reopened in early 2015 a year after it was taken offline. However, BMI's latest Italy Petrochemicals Report points out that the industry is completing a process of transition to more high-value, lower volume production that should help boost commercial viability in the long run.

Versalis saw its total polymers output decline by 1.9% in 2014, partly as a result of reductions in capacity in Italian operations, which were making significant losses. The 490,000 tonnes per annum Porto Marghera cracker was reopened in February 2015, a year after it was taken offline. Along with falling naphtha feedstock costs, this should help support production volumes in 2015, although this represents only a temporary fillip. However, the cracker is expected to...

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Pharmaceuticals & Healthcare

Italy Pharmaceuticals & Healthcare

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BMI View: Drugmakers will continue to face revenue earning challenges in Italy. In 2014, spending by Italy's national healthcare service, Servizio Sanitario Nazionale (SSN), fell for the seventh consecutive year in which SSN spending on drugs declined. SSN pharmaceutical expenditure will decline in 2015 - creating further revenue pressures for drugmakers as well as 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: EUR21.00bn (USD28.14bn) in 2014 to EUR20....

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Power

Italy Power

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BMI View: Thermal power capacity retirements amid slow growth in 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...

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Renewables

Italy Renewables

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BMI View: Our expectations for the renewable energy sector in Italy remain subdued, with limited growth expected throughout the forecast period to 2024. A weak domestic economy continues to hamper government infrastructure investment, while private developers will likely be deterred by ongoing adjustments to subsidies. There is very little activity in the project pipeline, a trend we do not expect to change over the short to medium term at least, and most of Italy's larger energy companies are turning their attention to opportunities outside of the domestic market.

Key Trends And Developments

  • Total non-hydropower renewable energy generation is expected to increase by 3.2% to reach 56.72 terawatt hours (TWh) in 2015,...

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Retail

Italy Retail

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BMI View: Italy will emerge from a three-year recession in 2015, boosted by European Central Bank quantitative easing, improving credit conditions, a weaker euro and the boost to disposable incomes from cheaper oil. We forecast real GDP growth of 0.5% in 2015 and 1.0% in 2016. Nevertheless, medium-to-long term growth potential remains extremely subdued, which will continue to weigh on household spending on the wider retail sector, as many opt to save rather than spend. However, an improving employment market, wage growth and loosening of lending will all boost spending over 2015 and beyond.

With one...

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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

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BMI View: With a strong existing tourism market, Italy is expected to have a stable few years of growth, despite economic concerns domestically and in the eurozone. The country has a wide range of city breaks and summer destinations, as well as a ski industry that has begun to recover following a tough period for the ski industry in general. The country has also done well to attract tourists from the Asia Pacific region, but the mature nature of the Italian market means rapid growth is unlikely.

At the beginning of 2015, investor sentiment within the Italian hotel market was high, with many foreseeing a strong couple of years for the country following a rough recent history in the country economically. BMI predicts solid growth in inbound arrivals over the next few years, with economic conditions in source markets such as...

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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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