An Economy with a View?

It’s not working.

Italian Riviera at Moneglia. Photo: Fiore dod. Source: Wikimedia

For the past 10 years incomes have diverged dramatically within the Euro-zone. Germany has done pretty well, most other countries have muddled along, and incomes in Italy have fallen. Per capita GDP in Italy is now 5% lower than it was in 2000. By contrast, the entire Euro-zone is 12% higher and Germany is 20% higher. This isn’t what Italians thought they were signing up for when they joined Europe’s common currency.

There’s no obvious reason why the Italian economy can’t grow faster. They have a world-class manufacturing sector, as evidenced by their Bugatti motorcycles, Ferrari cars, and Versace fashion. Northern Italy is fairly affluent by European standards, and southern Italy has beautiful tourist attractions. The Euro should make credit cheap and readily available. What’s gone wrong?

Source: St. Louis Fed

Italy used to export a lot of low value-added goods, like textiles, shoes, and furniture. Competition from Asia has been brutal. A rigid labor market means that there isn’t as much incentive for people to change jobs and shift to new, more competitive sectors. Silvio Berlusconi tried a couple of times to make reforms but learned that there was little electoral benefit in this. Now the reform parties want to re-impose Sunday and lunch-time closures in retail activities.

This is what’s behind the electoral chaos in Italy. A strong currency has hurt their global competitiveness, and bureaucratic restrictions make it hard to adjust. Recent reforms have made it a little easier to do business in Italy, but it can take some time for these to have an effect on the overall economy.

Source: Trading Economics

This doesn’t mean that Italy is a bad investment right now. In fact, their exports have been growing lately, up 13% since 2013. The direction is good. But the road to Italian growth may be a little bumpy.

Douglas R. Tengdin, CFA

By |2018-03-23T10:57:11+00:00March 23rd, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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