Macro Watch: The growth of Italy’s economy remains low at 1% year-over-year in the first quarter of 2011 compared with 2.5% y-o-y for the EU as a whole. It is also lower than the expected growth rate, which was set at 1.3%. Since the first quarter of 2010, Italy’s economic performance has been worse than the EU’s, and the gap seems to be getting wider. The government has worked out some measures to boost the country’s growth, and Italy’s leaders believe that if the new growth-stimulating measures are implemented entirely, the gap with the EU will be halved. Furthermore, the government has announced a EUR 40 billion austerity package, including measures to cut funding to local governments and health services as well as to delay retirement. This is aimed at balancing the budget by 2014.
Italy’s Exports and GDP Growth vs EU GDP Growth
Chart provided by: CEIC Data
Nevertheless, Italy faces an uphill battle in boosting its growth rate, as the country’s economic growth is driven mainly by exports, which equal almost a quarter of the country’s GDP. Many of the goods produced for export are in low-tech sectors, such as textiles, chemicals, and machinery, and thus face fierce competition from emerging economies. Furthermore, the low level of domestic demand and a subdued manufacturing sector are not favourable to economic growth. Thus, increasing productivity is the key to improving the competitive advantage of Italy over the emerging economies.
By June Chua in Malaysia – CEIC Analyst