Monday, April 1, 2013

It’s Time to Shun Berlusconi

Italy’s High Level of Government debt makes it Vulnerable to a Worsening Sovereign debt crisis. Can Italian PM Silvio Berlusconi, who is Currently Facing Sex & Power abuse Charges, save Italy from a free fall?

While the Italian Prime Minister Silvio Berlusconi has been extremely successful in organising his famous “Bunga Bunga” parties (which he denies of and is currently facing sex & power abuse charges), the 74-year-old TV magnate-turned-conservative politician has totally failed when it comes to handle the Italian economy which has been struggling to gain momentum following the 2009 recession that forced the value of its economic output to shrink by 6.7% (Q1 2009).

A closer look at the numbers and one can easily sense the real trouble. First, at 130%, the debt-to-GDP ratio of Italy is surpassed by no other eurozone nation (except Greece and Ireland, which have already opted for EU-IMF bailout package). Second, its anemic nominal GDP growth rate of 1.23% per annum over the past decade makes it the second slowest growing economy in the euro area after Portugal (Portugal’s growth rate has averaged only 1% during the past ten years). If this isn’t enough, Italy’s recovery has already started losing momentum as GDP growth slows to 0.1% (q-o-q) in Q1 2011 from 0.3% in Q3 2010, the weakest performance over the last one year.

In fact, several economists expect the Italian GDP growth to slow to 0.6% in 2011 from 1% in 2010 as major fiscal consolidation at the domestic level, as well as in most of its European trading partners, weighs on demand. While fiscal tightening across Europe is set to dampen demand for key Italian exports as four of its five biggest trading partners (Germany, France, Spain and UK) are in Europe, private consumption (which comprises over 50% of Italy’s GDP) too is expected to remain under pressure considering high unemployment, subdued wage growth, and tight credit situation in the country. Softer domestic and export sales could even prompt some companies to stop hiring and slim workforces. This, combined with public sector job cuts, is set to put upward pressure on the unemployment rate, which is already hovering at 8.7% at present.

Further, the economy lacks one of the most important components of all if growth is expected to be sustainable – the gross fixed investment, which has once again started falling after growing at a healthy rate of 4.6% during first quarter of 2010. In fact, the rate of gross fixed investment is expected to deteriorate further as the weak economy erodes profit margins and puts downward pressure on capacity utilisation. What’s more? Moody’s Analytics anticipate the growth in gross fixed investment to come down to literally zero by Q3 2011.
 

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist). For More IIPM Info, Visit below mentioned IIPM articles
Posted by at
Labels: , , , , , , , , , , ,