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.
Italy Country Risk
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...
Italy Industry Coverage (19)
BMI View: We have made modest revisions to our Q1 2016 Italian agribusiness report and now hold a mixed outlook. We believe that the cheese, milk, poultry and pork industries will record stable growth though to 2018/19. The removal of the EU's milk production quota in 2015 and the opportunity for Italy to develop its value-added exports will be positives. 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.
Poultry production will record growth of 1.3% in 2015/16 to reach 1.29mn tonnes.
Pork production will reach an estimated 1.70mn tonnes.
Liquid milk consumption will reach 2.32mn tonnes...
BMI View: Pent-up demand and the need to replace the country's ageing fleet, alongside modest upticks in consumer spending and cheap borrowing costs, will provide strong supports to new car sales.
Pent-up demand and the need to replace the country's ageing fleet will encourage new car sales.
Historically low interest rates will spur auto loans growth.
Commercial vehicles will outperform due to an uptick in business confidence and rising capital expenditure.
Vehicle production will continue double-digit expansion as Fiat Chrysler Automobiles increases the output of Alfa Romeos in time for new releases.
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Italy Commercial Banking
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Defence & Security
Italy Defence & Security
BMI View : We expect Italy's defence budget to continue to decrease in 2016, albeit at a slower rate than previous years. However, much like its neighbours, Italy is gaining awareness of the importance of developing a well-equipped and more mobile armed forces in order to tackle the international challenges that have emerged in the last decade. As such, in 2015, it published its first Defence White Paper since 1985, which highlights the importance of increasing the defence budget in order to also increase procurements and contracts to modernise its forces. This will therefore...
Food & Drink
Italy Food & Drink
BMI View: Our consumer outlook for Italy will continue to brighten over the next quarters, with household spending supported by low inflation levels and employment growth. As a result, sales of food and drink will return to positive territory. Nonetheless, we caution that growth across the sector will remain modest, due to existing high levels of consumption and unfavourable demographic dynamics.
Headline Industry Data (local currency)
2015 food consumption = +0.5% year-on-year (y-o-y); compound annual growth rate (CAGR) 2014 to 2019 = +1.2%.
2015 alcoholic drink value sales = +0.8%; CAGR 2014 to 2019 = +1.5%.
2015 soft drink value sales = +0.8%; CAGR 2014 to 2019 = +2.5%.
2015 mass grocery retail sales = +0.7%; CAGR 2014 to 2019 = +1....
Italy Freight Transport
BMI View: 2016 will be a good year for Italy's freight sector as the upswing in domestic consumption will stimulate road freight growth and as exports of cars and pharmaceuticals will show more dynamism than observed in recent years, which will feed through into growth of rail and air freight. Over the medium term, we expect growth in Italy's freight sector to slow down considerably as economic growth will be muted and exports will face strong competitiveness issues.
We have revised up (modestly) our forecasts for Italian real GDP growth in 2016 and 2017, to 1.2% and 1.0% respectively, from 1.1% and 0.9% as the recovery in domestic consumption will be strong. Over the medium term, however, we hold a bearish view with regards to the Italian economy, as the moderate recovery in domestic consumption will be insufficient to offset the...
BMI View: Italy's construction sector will contract for the eighth consecutive year in 2015 as ongoing government austerity measures limit public spending on infrastructure and the housing market continues to lose value, deterring potential investors. Several years of under-spending has resulted in a backlog of necessary infrastructure improvement works, and as Italy returns to more positive economic growth we do expect to see more projects entering the pipeline. The focus will most likely be on transport infrastructure, where various road and rail projects are set to benefit from regional funding. Overall, however, growth will remain subdued, with annual growth struggling to exceed 2% throughout much of the 10...
BMI View: An improvement in Italy's economic climate, albeit gradual, should support positive growth in insurance spending through our forecast period to 2020. Helped by low interest rates, Italian households are gradually starting to spend money again, a trend which is filtering through into both the life and non-life insurance markets. The remodelling of Italy's pensions and welfare systems should create long-term growth opportunities for private insurers in certain segments of the market, notably the life and health insurance markets. Meanwhile, as companies streamline, the consolidation of the insurance market may provide room for new entrants and investors.
Italy Medical Devices
BMI View: Italy will remain the fourth largest market in Western Europe but also the slowest growing, restricted by a weak euro, healthcare cost-containment measures and a fragile import performance. Per capita expenditure will remain very low by regional standards. Despite improvements, small companies will have to deal with a notorious amount of red tape and payment delays in the public sector, which represents about 70% of the market.
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...
Oil & Gas
Italy Oil & Gas
BMI View: Italy's oil and gas sector will continue to suffer from a gradual depletion of its hydrocarbon reserves and 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.
In spite of a return to economic growth in 2015 and 2016 and cheaper oil prices, Italy's petrochemicals market looks in a precarious state. While the automotive industry is expected to post solid growth, the construction industry remains in recession. More and more of Italy's petrochemicals requirements, however, are imported as the country's industry emerges from a period of massive capacity cutbacks, with potentially more in store.
The 490,000 tonnes per annum (tpa) Porto Marghera cracker was reopened in February 2015 and is likely to continue operations well into 2016. This extension of life to the cracker, which is scheduled for permanent closure, was initially intended to serve customers of Shell's operations in the Netherlands, which were temporarily shut down. However, lower naphtha feedstock costs are enabling it to continue...
Pharmaceuticals & Healthcare
Italy Pharmaceuticals & Healthcare
BMI View: While the implementation of cost containment policies targeting the pharmaceutical industry in Italy may work to prevent the healthcare expenditure budget from overshooting, in the long term, such policies may lower incentives for structural reforms of the healthcare sector as in theory they do not guarantee the efficient provision and management of healthcare services. The Italian public sector operates through regional autonomous communities, resulting in a decentralised approach to drug procurement and healthcare provision.
Headline Expenditure Projections
Pharmaceuticals: EUR22.04bn (USD29.53bn) in 2014 to EUR21.74bn (USD23.92bn) in 2015; -1.3% in local currency terms and -19.0% in US dollar terms....
BMI View: Non-hydropower renewables and transmission and distribution networks will be the most attractive sectors in the Italian power market in 2016, due to planned financial incentives for non-PV renewables and public and private focus on the development of additional cross-border power interconnections. Delays in the introduction of a capacity market maintain our outlook for the Italian thermal power sector grim, with further retirements...
BMI View: We maintain our muted non-hydro renewables forecast for this quarter, as punitive subsidy cuts over the last three years and uncertainty over the specifics over the long-term renewables expansion plans will continue to be potent obstacles to a rebound in investor sentiment. While we are seeing some movements on the behalf of the Italian government to restart growth, and PV solar is reaching grid parity in some parts of the country, a pick-up in growth will be contingent on an improvement in the government track record for renewables policy.
BMI View: The economic recovery that began in 2015 after a three year recession will gather momentum in 2016, although the recovery will remain relatively tepid. Employment will increase, as will consumer confidence and this will provide a boost to the retail sector. However, because the recovery will be relatively tepid, we believe that essential spending will increase more rapidly than non-essential spending. Low inflation and low interest rates will also help to boost retail spending in 2016.
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BMI View : The joint statement signed by WIND, Vodafone, F2i and FSI for the rolling out of nationwide fibre-optic network through Metroweb sees the development of more advanced broadband technologies in place, but we believe this will continue to be a slow process in the market. We view Telecom Italia's involvement in this deal as necessary if it is to improve its revenues, which - along with Vodafone's - have suffered due to the WIND-3 merger. While Italy retains a large prepaid base, we believe operators will gain profitability not by increasing the price of basic services but through improving usage with new services, such as LTE.
|3-WIND Merger Lessens Price Pressure|
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BMI View: Italy has a very large and well-established tourism sector. The country is a popular destination for travellers from within Europe and across the world, drawn to its rich culture and exciting history. Over the forecast period we see total arrivals to the country growing significantly, especially with a weaker euro, as economic conditions continue to improve in many of the key source markets. Many Asian and Middle-Eastern countries appear keen to develop improved travel links with Italy in the coming years, Qatar in particular looking to Italy as a key destination. Although the tourism sector is large, it is currently saturated and opportunities for new entrants may be limited. The high-end, luxury accommodation market is especially well catered for in Italy, especially in the major cities. Opportunities may be offered by the emerging concept of "green tourism";...
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...