Italy Had Zero GDP Growth In 2005

I am sure some people must sometimes feel I am exaggerating when I try to explain the rather dire straits which I feel the Italian economy has fallen into. If you are one of those people I would ask you to take a good look at the latest data release:

Official statistics published on Wednesday showed Italy experienced zero growth in 2005 underlining the dire state of the country’s economy and dealing a blow to Prime Minister Silvio Berlusconi’s election campaign…..Istat, the official statistics institute, said that the weak data contrasted with the US’s 3.5 per cent, the UK’s 1.8 per cent, the 0.9 per cent of Germany and Spain’s 3.4 per cent.

And it’s not as if 2005 was a bad year for the global economy generally, the world economy steamed ahead at a rate of around 4.25% last year, driven by systematic development in India and China and strong growth in the US. Italy has now had an annual growth rate of around 1% per annum over the last decade, and I see no good reason to justify the expectation that this is going to perk upwards sharply anytime soon.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

11 thoughts on “Italy Had Zero GDP Growth In 2005

  1. “Could it be part of the answer?”

    Yes it could. But it isn’t all of it by any means though. Lack of competitiveness of Italain industry is also a part. The old model of comparatively cheap labour selling to the wealthier parts of the EU and the product and skill profile that went with it is seriously problematic in the era of a comparatively high value euro, plus the arrival of Eastern Europe and China etc. Italy is in bad need of product and labour market reform, but the ageing society element could be one of the factors which resists this.

  2. Eyeballing this graph:

    http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

    we find that most of Western Europe is living in a fairly narrow band between $27,500 and $30,000 per year. The Big Four plus Belgium, the Netherlands, Finland and Sweden all fall in this range.

    This of course conceals huge regional disparities. Most obviously, if you crack Germany into Old East and Old West, one falls below this range while the other rises just out of it.

    A quick glance at other stats shows that Italy’s Human Development Index is just about where you’d expect: almost identical to France, Britain, and Germany. The economy may be stagnating, but it hasn’t yet begun to affect things like life expectancy or literacy. As for inequality, Italy’s Gini coefficient is highish for western Europe, but still lower than Britain’s.

    Despite a decade of crap growth, Italy is still slightly richer than France.

    H’m. “Lot of ruin in a country”?

    Doug M.

  3. Another thought: if we’re going to correlate growth with demographics, what happens if we move the scale to a regional level?

    Specifically, the north of Italy has long been decoupled from the south both economically and demographically — much richer, and so went through the demographic transition earlier.

    So what do the demographics look like now, and how do regional growth rates compare?

    Anyone?

    Doug M.

  4. > the north of Italy has long been decoupled from the south both economically and demographically — much richer, and so went through the demographic transition earlier.
    > So what do the demographics look like now, and how do regional growth rates compare?

    The demographics are not that different. From demo.istat.it/altridati/indicatori (data for 2004):

    % population of working age [16-64]:
    North 66,2
    Center 65,9
    South 66,8

    % Natural population growth:
    North -0.04
    Center -0.07
    South +0.17

    % Population growth including migrations:
    North +1.40
    Center +1.10
    South +0.41

    From http://www.istat.it/dati/dataset/20051220_00
    % Average GDP growth 1999-2004:
    North 1.6%
    Center 1.9%
    South 1.8%

  5. Stefano,

    Thanks for the data. Interestingly, fertility often correlates with educational achievement levels and I guess that can explain some of the North-South differences, the centre is strange though.

    Then when you look at migration you see a difference, the growth is in the north. And of course these migrants now normally don’t come from the south but from outside Italy.

    “The economy may be stagnating, but it hasn’t yet begun to affect things like life expectancy or literacy.”

    Oh, I doubt it will, at least not any time soon. The high life expectancy and the low fertility may in fact correlate. Things would really have to fall apart at the health care level for life expectancy to be impacted.

    “H’m. “Lot of ruin in a country”?”

    Well exactly, what we have is economic stagnation and growing government debt, things which are eventually unsustainable. Meantime, as Berlusconi doesn’t cease to remind us, the Italians probably have more mobile phones per head than virtually anyone else.

  6. Have we seen a developed country go through a decade of low growth before?

    Yes, we have — Japan.

    In some ways, Japan in the early 2000s was even worse off than Italy is today. Godawful demographics without virtually no legal immigration. Labor markets even more rigid than Europe’s. The highest debt-to-GDP ratio of any developed nation.

    But the Japanese seem, crossed fingers, to be bouncing back.

    Valid analogy?

    (And thanks to Stefano. While those differences are interesting, for me the really surprising thing is how small they are.)

    Doug M.

  7. But the Japanese seem, crossed fingers, to be bouncing back.
    Valid analogy?

    Are they bouncing back for good or are we just seeing a cycle superimposed on a long slow decline? Which analogy do you like?

  8. Are they bouncing back for good or are we just seeing a cycle superimposed on a long slow decline?

    The OECD projects 2.4% growth in 2005, followed by 2% in 2006. Not fantastic, but still Japan’s best two-year performance since 1991.

    Those numbers get more interesting if you believe that demographics and debt have a major effect on growth. Japan is by far the oldest large industrial country — the average Japanese is 41 years old. It also has by far the largest government debt: a breathtaking ~150% of GDP.

    Two years could be just barely be a dead cat bounce. Three years, not. So, if Japan is still on course for decent growth 18 months from now, we might have something interesting going on.

    Doug M.

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