Italy: recovering or stagnating?

That Italy appears to be able to generate cyclical growth is good news for the eurozone.

"Greece may be the canary in the eurozone coal mine," writes Richard Barley in The Wall Street Journal, "but Italy is the elephant in the room." While Greece's boom and bust crisis is "acute", Italy has more of the "chronic" variety, as "it has barely grown since joining the euro".

Given the country's size it's the eurozone's third-largest economy that's a bigger fundamental problem than the fate of the smaller, more peripheral Greek economy.

So the good news is that Italy "appears to be emerging from a recession that has lasted for more than three years", says The Economist. This is due to a combination of "falling oil prices, the European Central Bank's quantitative easing and a weaker euro", which are "all doing their bit". Prime Minister Matteo Renzi "has pencilled in growth for this year of 0.7%", but "some of his advisers think that will prove an underestimate".

The government claims that this shows that "reforms Mr Renzi has undertaken over the past 14 months are starting to have an effect". Buoyed by this, they are considering "easing up on austerity and mulling €1.8bn in new fiscal stimulus measures", says Giulia Segreti in the FT.

While it plans to cut public spending further next year, this will still bring it "€6bn short of the original three-year plan set by Italy's former spending tsar in a March 2014 report". But this may bring Italy into conflict with the EU and the International Monetary Fund, which wants it to "rein in its high levels of public debt".

The corporate sector is also showing signs of growing confidence, say John Follain and Marco Bertacche on bloomberg.com, as demonstrated by "a boom in mergers and acquisitions in Italy". Encouragingly, this includes interest from foreign buyers who see value emerging in the economy.

"Deals targeting Italy surged more than 400% year-on-year to a total value of $19.3bn." This is "more than any other country in the euro region and compares with a 14% increase across Europe asa whole".

All this may be a sign that Italy is about to "show that it can at least generate cyclical growth", as Barley puts it. That's important not just for the country, but for the entire eurozone. "If it doesn't, expect more questions to be asked about what the single currency does for its members."

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Will a stronger euro ruin Europe's rally?
European stockmarkets

Will a stronger euro ruin Europe's rally?

International investors have been buying into European stocks, driving the euro higher. But that surge now risks dampening the recovery that started i…
21 Sep 2020
No deal is the best deal for Britain – and the EU too
Brexit

No deal is the best deal for Britain – and the EU too

Europe has a lot to gain from a thriving, independent Britain, says Matthew Lynn.
6 Sep 2020
Europe’s magic works better in the dark
EU Economy

Europe’s magic works better in the dark

Europe’s latest fiscal intervention looks like the kind of muddle-through that makes a United States of Europe more likely, says Merryn Somerset Webb.…
28 Aug 2020

Most Popular

The rising dollar is proving bad news for most other assets – will it last?
Investment strategy

The rising dollar is proving bad news for most other assets – will it last?

Precious metals, stocks and pretty much every other asset has taken a tumble as the US dollar strengthens. Dominic Frisby looks at how long this trend…
23 Sep 2020
Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
Why you should stuff your end-of-pandemic portfolio with Chinese stocks
China stockmarkets

Why you should stuff your end-of-pandemic portfolio with Chinese stocks

For an end-of-pandemic portfolio, you need assets that can cope with today’s volatility. And that, says Merryn Somerset Webb, means Chinese stocks.
14 Sep 2020