Italy enters recession: another sign of a weakening Eurozone economy 

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the Italian economy along with the Eurozone:

  • The Italian economy fell into a very shallow recession in 2018Q4, with GDP contracting by 0.2% (QOQ), following a 0.1% (QOQ) fall in 2018Q3.
  • In addition, Italy’s economy has several endemic problems including vulnerable banks which hold a considerable proportion of government debt, and a huge public sector debt-GDP ratio (over 130%).
  • The IMF’s latest annual assessment of Italy painted a worrying picture, including high unemployment, very high public debt and vulnerable banks.
  • There have been many institutional developments in the EU to shore up the Eurozone since the debt crisis, which peaked in 2010-2012.
  • Economic and Monetary Union (EMU) is, however, still incomplete, not least of all because there is no fiscal union backing up monetary union.

UK developments included:

  • The Bank of England left monetary policy unchanged at the February meeting, with Bank Rate staying at 0.75%. It seems some way off raising rates.
  • The Bank downgraded their GDP growth forecasts in February’s Inflation Report for 2019 (to 1.2% from 1.7% in November) and 2020 (1.5%, down from 1.7%).
  • According to the Bank the growth of consumer credit slowed in December – to 6.6 (YOY), compared with November’s 7.2%.
  • The Markit/CIPS surveys were all weaker, and fairly subdued, in January, reflecting Brexit uncertainties.

Ruth Lea said, “Concerns about the Italian economy have given rise to renewed debate on the robustness of the Eurozone. There are few expectations that Italy will experience a major financial crisis in the near-term. But, if there were one in an economy as large as Italy’s, there must be doubts whether the Eurozone’s institutional arrangements, as they stand, would be robust enough to cope with it. There have, of course, been many developments to shore up the Eurozone’s institutions since the debt crisis. But European and Monetary Union (EMU) is still far from “complete” in some very key areas. Crucially, there is no fiscal union backing up monetary union. This leaves the Eurozone vulnerable to shocks.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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