Focus on Italy (IBR 2013)


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Focus on Italy (IBR 2013)

  1. 1. Focus on: Italy Grant Thornton International Business Report 2013
  2. 2. Focus on: Italy Ninth larges econom Introduction globall GDP aproximately €1.48 trillion Italy is an advanced economy of more than 60m people. In 2012, its GDP was approximately €1.48trn (US$2trn), making it the ninth largest economy in the world. htniN Drawing on official data sources, such as the Economist Intelligence Unit (EIU) and the International Monetary Fund (IMF), and the Grant Thornton International Business Report (IBR), this short report considers the outlook for the economy, including the expectations of 200 businesses interviewed in Italy, and more than 12,500 globally, over the past 12 months. tsegral ymonoce yllabolg Ninth largest Giuseppe Bernoni Managing partner Bernoni Grant Thornton T +39 02 76 00 8751 E economy GDP globally aproximately €1.48 Focus on: Italy 2
  3. 3. Providing services for asset managers, 12.2% fund administrators, Focus on: Italy hedge funds, 11% as recog by Wall S special purpose vehicles and mutual funds 6.6% 59.4% 5.4% Economy 5.4% The Italian economy continues to struggle with the fallout from the eurozone sovereign debt crisis, with a contraction in Q2 marking the 12.2% eighth straight quarterly decline. Bond yields have fallen since peaking at 7% in late 2012 but political uncertainty following the inconclusive election at the beginning of 2013 and the sentence for tax evasion handed down to the leader of the centre-right, Silvio Berlusconi, have 12.2% 12% unemployment rate Export destinations (2012) Germany 11% France US 6.6% 59.4% 60 of our memb top cli operate in financ Economy expected 12.2% 11% seen yields rise back above Spain’s for the first time since March 2012. Italy 11% 6.6% remains a world leader in sectors such 59.4% as engineering and fashion but high unit 5.4% 6.6% 59.4% labour costs have prevented rising5.4% exports 5.4% offsetting the negative impact of declining domestic demand. 5.4% Over 5.4% 5.4% Spain UK Other to contract by 1.8% in 2013 0.2% forecast growth in 2014 Key Indicators • the economy contracted by 0.2% in Q2 from the previous quarter, a 2.1% year-on-year contraction • the yield on ten-year bonds climbed to 4.5% in September, up from 4.2% in August • exports rose by 0.2% in the first seven months of the year compared with the same period in 2012 • imports fell by 6.0% over the same period, widening the surplus to €18.2bn (US$24bn), up from €4.2bn in the same period of 2012 • the unemployment rate reached 12.2% in major markets an all-time high of 12% in May, the highest since records began in 1977, Combined out of11% with the number of people global work now more than double the 6.6% pre-crisis average. 59.4% Ranked in the top 6 revenues of $300m 5.4% in financial services 5.4% 2012 Australia Import originations (2012) remains a key trade partner Economy expected 15.9% Germany 8.5% 58.1% One of the ‘large six’ 7.7% 4.5% 5.3% France China Spain Netherlands Others to contract by 1.8% in 2013 0.2% forecast growth in 2014 global accountancy Ranked in Providing services for the top 6 asset managers, fund administrators, hedge funds, in major markets special purpose vehicles organisations Australia Source: Economist Intelligence Unit (2013) as recognised remains a key by Wall Street trade partner Focus on: Italy 3 of Italian
  4. 4. Economy expected Focus on: Italy to contract by 1.8% 12.2% 11% 59.4% Economic outlook in 2013 0.2% 6.6% 5.4% The Italian economy is expected by 1.8% this year, with growth of only 0.2% forecast for 2014. The eurozone as a whole exited recession in Q2 and a healthier outlook for the key export markets of France and especially Germany following the re-election of Angela Merkel, should help exports grow by around 1.0% in both 2013 and 2014. Growth of around 1% per annum is forecast in 2015-17, remains a dependent on a sustained improvement in external conditions. key forecast growth in 2014 5.4% to contract Ranked in the top 6 Australia trade partner Competitiveness remains a Italy is still running a primary surplus – in major markets wages rising much faster thankey issue with productivity meaning the budget is in surplus excluding over the past decade. However, fractious interest payments – and the overall budget Combined in 2013 balance is forecast to fall from -3.5% global politics and the constant threat of to -2.6% by 2017. However, net government government collapse may prevent the coalition led by Enrico Letta from debt remains greater than the value of the entire economy – amongst advanced implementing potentially unpopular economies only Greece, Japan and Portugal structural reforms to improve labour and product markets. have larger debt piles – and is expected to in financial services peak at 106% of GDP in 2014. Balancing 2012 the reduction of the debt burden with efforts to boost growth and reverse a rise Economy expected in unemployment – which is expected global accountancy by to contract to remain above 10% in the short to Economy expected medium-term – is a key challenge. to contract by revenues of $300m One of the ‘large six’ organisations as recognised in by Wall Street 2013 1.8% hedge funds, Providing services for asset managers, fund administrators, in 2013 special purpose vehicles 0.2% and mutual funds Over 1.8% 0.2% forecast growth in 2014 60% forecast growth in 2014 Australia of our member firms’ top clients General government net debt (% GDP) 100% Greece 155% 134% Japan 112% Portugal Italy 103% Ireland 102% US 88% France 84% UK 83% Spain Germany 72% 57% 120+ 120+ $1.8trn 1.2 billion inhabitants and growing Source: International Monetary Fund (2013) countries where our 400 business Audit, Tax and countries where our and Advisory professional Audit, Tax and work together 15% 16% gross domestic product expect to interviews increase and Advisory of businesses expect revenue to rise 1 10.4 globa We are t accou Focus on: Italy 4
  5. 5. treet managers, asset fund administrators, Focus on: Italy by Wall Street hedge 1.2 billion inhabitants and growin funds, special purpose vehicles 1.2 billio Business growth prospects and mutual funds % 60% $1.8trn ents top clients 12% Business confidence in Italy remains fragile. In Q2-2013, -20% of business leaders expressed optimism in the economic outlook for the next 12 months (indicating that a majority were pessimistic). This was slightly above the southern Europe average (-29%) but well below the eurozone result (-8%). This lack of confidence feeds through to Italy’s business growth prospects. Just 16% of business leaders expect to see revenues increase over the next 12 months, slightly below the eurozone average (22%). This is well down on pre-crisis levels and remains around half of the result in 2011, when the region appeared to be recovering from the financial crisis. Expectations for profits are similarly weak: across 2013, just 9% on average have indicated an expectation for profits to rise, although encouragingly this figure rose to 30% in Q2, up from -10% in Q1. As confident businesses are more likely to take on risk, it is perhaps no surprise that investment plans in Italy remain subdued. Just 15% expect to increase investment in plant and machinery over the next 12 months, below the eurozone average (25%) and some still well down on pre-crisis levels (51% in 2008). Net percentage of businesses optimistic for their economy (Q2-2013) Net percentage of businesses expecting to increase revenue (next 12 months) Over 400 business interviews 70% increase investment l services of businesses expect revenue to rise unemployment Above the rate 39% 2% EU Eurozone Italy Southern Europe -8% Global interviews of 15% 16% our member firms’ product 16% 15% gross domestic expect to expect to pect r firms’ 27% 400 business -20% -29% BRIC average Talent shortage hampers growth Source: Grant Thornton IBR 2013 Low demand 60% increase increase 40% Above the 30% 39% 20% BRIC average 10% remains a concern for 52% of Italian businesses investment 50% operate in financial services of busine expect rev to rise 2007 2008 2009 Talent 2010 Source: Grant Thornton IBR 2013 Low demand 2011 remains a concern for 2012 shortage hampers growth 2013 Italy 52% of Italian Eurozone businesses 5 Focus on: Italy
  6. 6. 1.2 billion inhabitants and growin Focus on: Italy 60% 400 Business growth constraints Continuing economic and political uncertainty continues to dampen business the growth prospects of Italian businesses. Over two-thirds (68%) interviews say economic uncertainty is likely to constrain their expansion plans over the next 12 months, the same as southern Europe and well above the eurozone average (49%). ur member firms’ op clients Perhaps of even more concern for the government, with a VAT rise and new services tax due to land in October 2013 and early 2014 respectively, and labour market reforms being considered, is the citing of bureaucracy (rules and regulations) as the second most pressing growth constraint. At 55% this is well above both the southern Europe (43%) and eurozone (37%) averages. Low demand remains a concern for more than half of Italy’s businesses (52%), rising to almost three-quarters (72%) in Q2-2013 ate in financial services $1.8trn Percentage of businesses citing factor as a constraint on growth 15% 16% gross domestic product expect to of businesses 68% alone. Again this is above bothexpect revenue the eurozone (35%) and southern Europe (50%) to rise averages. The cost and availability of finance are investment affecting around two in five Italian businesses, well above the eurozone average and close to double the rate before the financial crisis. Talent shortage hampers growth increase Above the 39% 55% 68% 49% Economic uncertainty 52% BRIC average erag 35% Bureaucracy 50% 42% 43% 23% Cost of finance Low demand Low demand 43% 37% remains a concern for 52% of Italian businesses 22% 39% 24% 41% Shortage of finance 13% 11% Lack of skilled workers Italy Eurozone Southern Europe Focus on: Italy 6
  7. 7. Focus on: Italy Net percentage of businesses expecting to increase selling price (next 12 months) Restoring competitiveness A key aspect of the eurozone sovereign debt crisis has been the inability of economies to devalue their currencies to boost the price competitiveness of their goods and services. However, as a consequence of severe austerity measures and low levels of economic activity, economies such as Spain have gone through a painful internal devaluation, lowering wages and selling prices relative to their competitors. The IBR results indicate that Italian businesses have not followed Spanish firms down this path. Over the past 12 months, net 13% of Italian businesses have indicated an expectation to raise prices compared with -11% of Spanish peers. Since 2011, a majority of Italy’s businesses have raised prices whilst a majority in Spain have slashed theirs. Over the next 12 months, 37% of Italian businesses plan to raise wages, compared with just 28% of Spanish peers. Tellingly, Spain’s unit labour costs have fallen 10% from their 2009 peak. Italy’s have risen by almost 5%. There are both positive and negative consequences of this approach. The key positive is the effect on exports: in Spain the number of exporting businesses has increased by 28% and merchandise exports have increased by 20% since 2007, with a greater share going outside the EU. Net 31% of Spanish businesses expect to increase exports over the next 12 months, compared to just 10% in Italy. The downside is the effect on jobs. Over the past 12 months, just net -1% of businesses in Italy have shed people. This compares with -24% in Spain where businesses have been losing workers consistently since 2009. Consequently, the unemployment rate is touching 27% in Spain – more than double the rate in Italy – rising to 57% for young people. 50% 40% 30% 20% 10% 2007 2008 2009 2010 2011 2012 2013 -10% Italy Spain -20% Net percentage of businesses expecting to increase exports (next 12 months) 35% 30% 25% 20% 15% 10% Italy Spain 2007 2008 2009 2010 2011 2012 2013 Source: Grant Thornton IBR 2013 Focus on: Italy 7
  8. 8. IBR 2013 methodology The Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the world, interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the world. Launched in 1992 in nine European countries, the report now surveys more than 12,500 businesses leaders in 45 economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally. The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and other senior decision-makers from all industry sectors in businesses with 100-499 employees. Q2 data is drawn from 3,300 interviews globally (50 in Italy) conducted in May 2013. 2013 data is drawn from over 12,500 interviews (200 in Italy) conducted between September 2012 and May 2013. To find out more about IBR, please visit: Dominic King Grant Thornton International Ltd Global research manager T +44 (0)207 391 9537 E Alessandra Morganti Bernoni Grant Thornton Main IBR contact T +39 02 006 339 33 E © 2013 Grant Thornton International Ltd. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton International Ltd (GTIL) and the member firms are not a worldwide partnership. GTIL and each member firm is a seperate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. CA1310-02