Posted Nov 23, 2022, 2:37 PM
The Italian crisis is deep . For several years, Italy has appeared as ‘the sick man of Europe’. According to several criteria, this judgment seems justified . First, Italian economic growth is anemic. According to the OECD, Italy’s potential growth was only 0.2% in 2019, compared to around 1.3% for France. Secondly, Italy’s public debt represents 151% of GDP (112.5% for France). The consequence ?
The difference between German and Italian interest rates at ten years evolves in October around 230 basis points (against only 55 between France and Germany). This is why Europe is demanding reforms as part of the recovery plan to release the 200 billion Euros promised to Italy. However, some of these reforms were contested by the parties of the new coalition.
A strong Italian industry
However, in this unfavorable macroeconomic context, Italian industry is doing much better than its French counterpart. Firstly, industry still plays a very important role in Italy: its weight in GDP amounts to 19.6% in Italy, against 13.5% in France.
Secondly, transalpine industrial production continues to grow: it increased by almost 8% in volume between 2015 and mid-2022, while French industry has still not returned to its 2015 level in 2022 (-0, 8%)!
Thirdly, Italy has considerable surpluses in its trade in goods with the rest of the world: 50.4 billion euros in 2021, when France, for its part, records a deficit of 109 billion euros. Finally, Italy records an intra-European surplus of 50.4 billion euros while the French industry has seen its trade with the other countries of the European Union collapse. The deficit amounts to 109.6 billion euros in 2021: a colossal gap of more than 150 billion euros between the two countries.
A surprising success
The success of Italian industry compared to French industry is surprising for several reasons. First of all, the large Italian groups are relatively few in number. Among the 100 largest multinationals in the world, there are only 3 Italian companies against 13 French ones. Next, R&D expenditure is particularly low in Italy: 1.45% of GDP, compared to 2.19% in France.
In number of patents per inhabitant, France also surpasses Italy: its population is 15% greater than that of Italy, but it files twice as many applications at the European Patent Office. Third, labor productivity has fallen in Italy. It is below the European average, whereas it was 9% above the euro zone average in 2005.
This can partly be explained by relatively low investments. Finally, Italy has no industrial policy. Public aid to companies is significantly lower there than in France.
What assets does Italian industry have to overcome these handicaps and have an industry that is much more competitive than France? The Italian industrial fabric is characterized by a family capitalism made up of small or medium-sized companies structured around particularly efficient specialized districts.
These SMEs continue to value production in Italy, which constitutes a guarantee of quality in the high-end and luxury sectors. As a result, a large proportion of Italian companies export. Italy has more than 220,000 exporting companies, against barely 130,000 in France. On the other hand, the major French groups have relocated a large part of their production (2/3 of their assets are abroad).
Finally, despite higher hourly costs, French industry is lagging behind Italy in terms of industrial robotisation. In 2020, French industry had 194 robots for 10,000 employees, compared to 224 in Italy. However, robots improve the productivity, quality and flexibility of production.
The markets are not worried
This good health of companies seems to indicate that an improvement in the context could favor a recovery in macroeconomic indicators: unemployment, debt, growth. Very many fears were expressed in this register vis-à-vis Giorgia Meloni.
However, since her appointment, she has shown herself to be pro-European, has inscribed her economic program in line with that of Mario Draghi, her predecessor and has entrusted the portfolio of the Economy to Giancarlo Giorgetti, ex-minister of Mr. Draghi. These elements are likely to reassure on the evolution of the economic context of Italian companies.
Moreover, the financial markets do not seem to be worried about the situation for the moment: over the last few months, the FTSE Mib, the Italian stock market index, has progressed at a rate quite comparable to those of the CAC 40 and the DAX.
opinion | Giorgia Meloni faced with the paradox of the Italian economy